Statement of the joint presidents and chief executive officers
|Refocusing safety to prevent high-severity injuries|
|Generating value through our strategy|
|Shift towards continuous improvement|
|Bolstering our standing as a credible stakeholder partner|
|Meeting our environmental commitments|
|Building organisational resilience|
The proactive measures we undertook from 2012 to sustainably reduce our cost base, enhance the Group’s competitiveness and, from early 2015, decisively respond to a low oil price, again proved indispensable in 2017 as we delivered another strong all-round performance amid continued market volatility. Evidence of our resilience is the fact that we are able to generate free cash flows from our core operations at oil prices of US$40 per barrel (bbl).
Our results, while adversely affected by a firmer rand and low commodity prices, are a testament to the robust foundation in place to position the Group for long-term growth. Indicators of our sound fundamentals are reflected in the record production volumes achieved this year as well as the realisation – a year ahead of previous market guidance – of the full Business Performance Enhancement Programme (BPEP) target of R5,4 billion in sustainable cash cost reductions.
When our solid operational and cost performance is combined with our heightened focus on macro-economic risk mitigations to protect our balance sheet, we have a robust base for future value-based growth. Additionally, through specific interventions to refine our long-term strategy and further improve capital allocation, we expect to further enhance Sasol’s intrinsic value.
Refocusing safety to prevent high-severity injuries
These encouraging developments are, however, overshadowed by five tragic fatalities in the year. We mourn the loss of Johannes Mashili, Gideon Coetzee, Carl Vermaak, Themba Mahlangu and Tyler Truett and again convey our sincere condolences to their families, friends and colleagues.
While the Group safety recordable case rate, excluding illnesses, continued its downward trend in 2017, improving to 0,28, our high-severity injuries remained too high and the loss of life is deeply distressing. We are working towards improving our understanding of injury severity, which is essential to mitigate the prevalence of fatalities and high-severity injuries. To enable this, we have established a methodology to help us better understand the actual, as well as the potential, severity of incidents.
Generating value through our strategy
During 2017, we recorded notable progress in delivering on our medium-term strategy, positioning Sasol for growth in Southern Africa and North America.
In North America, the US$11 billion Lake Charles Chemicals Project (LCCP) in Louisiana met key project milestones and was 74% complete by year-end, with capital expenditure amounting to US$7,5 billion and the start-up of the first units forecast in the second half of the 2018 calendar year. As we head towards commissioning of this world-scale facility, we have a fully integrated business and operations readiness plan in place to enable the new facility to successfully get product to market.
Following the start-up, the 1,5 million ton per year ethane cracker and six downstream chemicals units will begin to transform our earnings profile, both in terms of geographic spread and relative contribution of our chemicals and energy businesses. We expect the contribution from the United States (US) to group earnings before interest, taxation, depreciation and amortisation (EBITDA) to increase from 9% to 31%, and that of our chemicals business to grow from 47% to 64%.
In Southern Africa, our US$1,4 billion development in the Production Sharing Agreement (PSA) licence area in Mozambique progressed within our approved budget and schedule. By year-end, six wells had been drilled. We expect to complete the 13-well drilling programme by the end of the 2018 calendar year and remain firmly committed to our growth plans, despite the financial challenges the country faces. We will continue to partner with the Mozambican Government, and other institutions, on projects that will help stimulate growth.
In addition to the large capital projects in the US and Mozambique, we delivered on several other developments in the year. Our high-density polyethylene joint venture with Ineos in the Gulf Coast of the US, is essentially complete and is on track for start-up during quarter four of the 2017 calendar year. The complex will produce 470kt annually of high-value, bimodal high-density polyethylene.
In Sasolburg, the second phase of our Fischer-Tropsch wax expansion project achieved beneficial operation in March 2017, allowing us to double our South African production of hard wax, a sought-after commodity used worldwide by several major industries. This facility continues to ramp-up and produced 92kt of hard wax in 2017.
In November 2016, Loopline 2 on the Mozambique-to-Secunda pipeline reached beneficial operation. The project was delivered ahead of schedule and at least 25% below budget. This, alongside a commendable safety recordable case rate of zero for the project, was a significant achievement.
Furthermore in the year, we continued work to refine our longer-term strategy. This is to ensure that we have a robust set of principles to drive our future growth and investments, irrespective of the macro-economic environment. We will share details of this work with investors at a special capital markets day scheduled for later this calendar year.
Shift towards continuous improvement
With the conclusion of our large-scale restructuring programme of the past few years, which closed with the early achievement of our full BPEP savings target, we are refocusing the organisation towards a continuous improvement mindset.
This approach will be driven by critically objective assessments of our performance in all respects, supported by regular independent benchmarking and rigorous effort to continuously improve both effectiveness and efficiency.
The drive for continuous improvement underpins the importance of addressing the structural shift in the oil price by sustainably improving our margin contribution and cost base delivery.
Bolstering our standing as a credible stakeholder partner
Throughout Sasol’s 67-year history, we have played an important role in South Africa and the broader region’s industrialisation, growth and socio-economic development. In 2017, our contributions to South Africa included:
- approximately R17 billion in capital expenditure, with a further maintenance spend of R7 billion;
- payments of nearly R35,6 billion to the fiscus, retaining Sasol’s position as one of the largest corporate taxpayers in South Africa; and
- investment of over R676 million in social investment programmes globally, 88% of which was spent in Southern Africa.
Southern Africa is the cornerstone of Sasol’s global operations and here, as elsewhere, we seek to position ourselves as a credible stakeholder partner. We recognise that Sasol’s success depends on the support of multiple stakeholders and we must deliver on our commitments to improve perceptions of the company, especially in our home base.
We endeavour to build trust-based relationships with our key stakeholders, particularly in our ‘fenceline communities’ and with all levels of government. Here, our environmental performance, as well as transformation initiatives hold significant potential to bolster our standing as a credible stakeholder partner.
Meeting our environmental commitments
Over the last years, South African legislation required that Sasol facilities comply with more stringent air quality standards commonly referred to as “existing plant standards” by April 2015 and “new plant standards” by April 2020.
We adopt a risk-based approach to environmental improvement, including:
- detailed monitoring and reporting of our emission inventories;
- compliance with applicable legal requirements; and
- sustainably reducing emissions from our operations, enhanced by community-based offsets towards improved ambient air quality.
Through proactive interventions, we were able to meet most of the existing plant standards by 1 April 2015. Where we needed more time, we applied to extend the compliance timeframes, outlining our plans in environmental roadmaps. We were granted postponements of variable periods up to five years, with stretched compliance targets which we operate under in the interim and including requirements to implement community-based offsets near our facilities.
We anticipate significant challenges in meeting some of the “new plant standards” for our plants that were constructed years ago, including for steam and power plant sulphur dioxide emissions as well as coal gasification plant hydrogen sulphide emissions. We continue to investigate new technologies that may enable us to comply and to engage stakeholders to find sustainable longer-term solutions. It is expected that further postponements will be required to enable the advancement of our roadmaps. We are also implementing approved offset plans, focused on reducing non-industrial sources of air pollution such as that from the burning of household waste near our Sasolburg operations, and the burning of household coal and wood near our Secunda operations.
Building organisational resilience
We understand culture is not a variable we should only pay attention to from time to time. Culture, underpinned by our values, is essential to support us in achieving our goals. To this end, we set the foundation for the next step in our culture transformation journey by introducing a new vision and purpose for Sasol and we refreshed the company’s values. In the new year, we will focus on embedding the behaviours that support our aspired future culture.
During the year, we renewed our focus on critical skills and leadership capability development, as key enablers to build a resilient organisation for the future. We continued to invest in sponsored study and technical learning programmes, as well as leadership, career and succession development plans.
To secure a pipeline of future talent, we invested significantly in skills development, ranging from basic literacy and school-level programmes to technical training for professionals, through some of the largest bursary, graduate development and internship programmes in Southern Africa.
Extending our thanks
Our first year as Sasol’s Joint CEOs has certainly been a memorable one, characterised by disciplined cost management, cash conservation and astute capital allocation, underpinned by reliable and efficient operations, all of which is delivered through our talented people.
Our heartfelt appreciation goes to all our employees, who have remained resilient and focused on our key deliverables despite a very tough business environment.
We wish to acknowledge and thank the members of the Board for their continued support, guidance and wise counsel. We also extend our appreciation to all stakeholders who have entrusted us to drive this organisation forward to ensure we continue to deliver sustainable value over the long term.
|Bongani Nqwababa||Stephen Cornell|
|Joint Presidents and Chief Executive Officers|
28 August 2017
With plans to refine and articulate our longer-term strategy later this calendar year, we will continue to execute on our medium-term strategy, manage our material matters and deliver value through our new capital allocation principles. Our focus in 2018 will be on the following five priorities: