fbpx UPDATE - MAY 2019

Update - May 2019

Update on the Lake Charles Chemicals Project

Sasol Limited
Sasol Ordinary Share codes:        JSE: SOL     NYSE: SSL
Sasol Ordinary ISIN codes:         ZAE000006896 US8038663006
Sasol BEE Ordinary Share code:     JSE: SOLBE1
Sasol BEE Ordinary ISIN code:      ZAE000151817
("Sasol" or "the Company")


In the Company’s trading statement, released by the Stock Exchange News Service
on 8 February 2019, updated guidance was provided for the LCCP’s schedule and
capital costs, which were estimated in the range of $11,6 to $11,8 billion. Following
this announcement a number of changes were made to the management of the
LCCP, with project accountability immediately reassigned to the Executive Vice
President of Chemicals, Fleetwood Grobler and the strengthening of our project
controls organisation.

This team became concerned regarding the accuracy of the project’s cost forecast
and, as a consequence, our third quarter Business Performance Metrics
announcement in April 2019 indicated that the LCCP’s cost was tracking the upper
end of the range. Management also initiated a full review of the costs and schedule
until project completion with input from independent technical and financial advisers.

This review identified significant additional concerns related to the LCCP forecasting
process and a marked increase in the projected total cost. The review also confirmed
that the actual project expenditure (as at 31 December 2018) amounting to $10,9
billion was accurate and complete. Weaknesses in the project’s integrated controls
were identified and are being remediated.

The Board has also commissioned a review to be conducted by independent
external experts. This review will cover the circumstances that may have delayed the
prompt identification and reporting of the above-mentioned matters. Upon conclusion
of the review, the Board will take appropriate action to address the findings.


-   The first derivative unit, Linear Low Density Polyethylene, achieved beneficial
    operation on 13 February 2019 and the plant continues to ramp up in line with

-   We have achieved beneficial operation of the Ethylene Glycol unit (EG), with
    beneficial operation of the Ethylene Oxide unit (EO) expected in the coming days.

-   The Ethane Cracker is still expected to achieve beneficial operation in July 2019.

-   The remainder of the LCCP schedule for beneficial operation is as previously
    indicated in February 2019 apart from the beneficial operation of the last
    derivative plant (Guerbet unit), which is expected to be one month later in
    February 2020.

-   As of the end of March 2019, overall project completion was at 96%, with
   construction completion at 89% and capital expenditure on the project amounted
   to $11,4 billion.

Following the review noted above, the cost estimate for the LCCP has been revised
to a range of $12,6 to $12,9 billion which includes a contingency of $300 million. The
principal factors that impacted the revised cost estimate to complete the LCCP are
as follows:

1. Adjustments to the February 2019 cost forecast – approximately $530 million

   -   Correction for duplication of investment allowances of approximately $230
   -   Correction for certain contracts and variation orders managed by Sasol,
       outside the primary engineering, procurement and construction contract, of
       approximately $180 million.
   -   Forecast improvements not expected to be realised and adjustments for
       potential insurance claims and procurement back-charges of approximately
       $120 million.

2. Additional events and remaining work impacting February 2019 cost forecast -
   approximately $470 million

    Ethane Cracker, EO/EG and Utilities - approximately $210 million:
   -   Work to correct previously identified defective carbon steel forgings
       significantly impacted critical path activities with a greater than expected cost
       impact. This included the removal and re-instatement of insulation,
       instrumentation and cabling, as well as post repair heat treatment.
   -   Replacement of the internals of numerous heat exchangers due to corrosion.
   -   The completion of painting, insulation and fireproofing at the Ethane Cracker
       and EO/EG was impacted as a result of the necessary repair activities
       outlined above.

    Remaining Work – primarily Low Density Polyethylene and Ziegler / Alumina /
    Guerbet units - approximately $260 million
   -   The review identified a significant increase in required finishing activities
       such as heat tracing, insulation, fireproofing and associated work as well as
       additional infrastructure costs.

3. A contingency amount for items that could impact the cost forecast - $300 million

   -   Worse than anticipated weather impact.
   -   Lower than assumed productivity and associated time extension.
   -   A new risk identified relating to bolting materials that may need to be
   -   Other unforeseen items impacting finishing and commissioning activities.


This increase in the anticipated LCCP capital costs is extremely disappointing.
Executive management has implemented several changes since February 2019 to
further strengthen the oversight, leadership for the project and frequency of
reporting. Actions include segregation of duties between project controls and
finance functions and assigning a Senior Vice President to have responsibility for the
LCCP project controls. Initiatives to improve decision making, transparency and
documentation within the project management team are also in progress. The new
project leadership has been instrumental in identifying and remediating these issues.

The reviews and investigations initiated by management to date indicate that any
impact on the underlying controls are limited to the LCCP.


The increase in the LCCP’s cost does not alter Sasol’s capital allocation strategy.
The plan remains to reduce balance sheet gearing towards 30% followed by an
increase in the dividend pay-out ratio to 40% and remains on track to occur between
financial years 2020 to 2023. Over this period the anticipated contribution from the
LCCP has been negatively impacted by a change in the short and medium term
pricing outlook. Operating costs for the LCCP, although projected to be slightly
elevated during start-up, are otherwise still in line with previous guidance. As a result
the earnings before interest, tax, depreciation and amortisation (EBITDA) for
financial year 2022 of $1,3 billion have been revised to approximately $1 billion. The
long term market pricing outlook is still in support of a long term run rate EBITDA
contribution from the LCCP of $1,3 billion. The short term market outlook for ethane
and product pricing remains volatile and estimates will be updated periodically.

In light of the increase in capital costs as well as the latest market pricing outlook, the
forecast internal rate of return for the LCCP has declined from 7,5% to 6,0 - 6,5%.
The larger part of this move comes from the change in chemical pricing assumptions
given that a US10 cents change in ethane pricing impacts the EBITDA by
approximately $150 million per annum.

The increased capital cost will result in the gearing level for Sasol remaining
elevated for 18 to 24 months. Based on current assumptions, peak gearing is still
expected to occur during financial year 2019 with forecast net debt to EBITDA
remaining within the 2,0 to 2,3x guidance range. The Company’s balance sheet
continues to be actively managed in order to maintain a robust liquidity position and
debt maturity profile. As part of this the Company recently issued a $2,25 billion bond
which was used to partly settle the LCCP’s project asset finance facility. The
Company has been successful in extending the maturity profile of the debt portfolio
over the last few years with the first significant repayment due in 3,5 years
(November 2022). Efforts to further to optimise the maturity profile continue as the
Company executes its value based strategy and moves towards targeted gearing
levels. Retaining the Company’s investment grade credit rating remains a priority.

Several additional management actions have been identified and are in the process
of being implemented in an effort to conserve cash over the following 12 to18
months. These actions are focussed on further cash fixed cost savings, capital
portfolio optimisation, working capital improvements and asset disposals at value.

As previously communicated to the market, management has substantially
completed the detailed asset review programme. This process forms a key part of
the portfolio optimisation strategy, and has now progressed to the stage where the
disposal of larger non-core assets can be accelerated. The Company will target the
disposal of assets which have an aggregate net asset value exceeding $2 billion.
The safeguarding of value will be prioritised through this process, and the financial
metrics disclosed above do not rely on any asset disposals. Relevant disposals will
therefore further support the deleveraging of the balance sheet, as well as
simplification of the investment portfolio and increased focus in executing our value
based strategy.

The financial information on which the LCCP update is based has not been reviewed
or reported on by the Company’s external auditors.

The Joint Chief Executive Officers will host two webcast /conference calls on 22 May


The first call will begin at 08:30 (SA), 06:30 (GMT) and 01:30 (CST) on 22 May 2019

 Conference ID                              3862023
 Money Center and Conference ID             Participant Number
 South Africa, Johannesburg                 +27 11 844 6054
 United Kingdom                             +44 (0)330 336 9105
 United States                              +1 323-794-2551
 Singapore                                  +65 6320 9025
 Moscow, Russia                             +7 495 213 1767
 Toronto, Canada                            +1 647 794 4605

The second call will begin at 14:30 (SA), 12:30 (GMT) and 07:30 (CST) on 22 May

 Conference ID                              7019987
 Money Center and Conference ID             Participant Number
 South Africa, Johannesburg                 +27 11 844 6054
 United Kingdom                             +44 (0)330 336 9105
 United States                              +1 323-794-2423
 Singapore                                  +65 6320 9025
 Moscow, Russia                             +7 495 213 1767
 Toronto, Canada                            +1 647 484 0478

22 May 2019

Sponsor: Merrill Lynch South Africa Proprietary Limited

Disclaimer – Forward-looking statements
Sasol may, in this document, make certain statements that are not historical facts
and relate to analyses and other information which are based on forecasts of future
results and estimates of amounts not yet determinable. These statements may also
relate to our future prospects, developments and business strategies. Examples of
such forward-looking statements include, but are not limited to, cost estimates and
expected timing of beneficial operation of LCCP, targets or guidance regarding our
gearing ratio and dividend pay-out ratio, net debt-to-EBITDA ratio, EBITDA and
internal rate of return for LCCP, as well as statements regarding our future liquidity,
credit ratings and non-core asset disposal strategy. Words such as “believe”,
“anticipate”, “expect”, “intend", “seek”, “will”, “plan”, “could”, “may”, “endeavour”,
“target”, “forecast” and “project” and similar expressions are intended to identify such
forward-looking statements, but are not the exclusive means of identifying such
statements. By their very nature, forward-looking statements involve inherent risks
and uncertainties, both general and specific, and there are risks that the predictions,
forecasts, projections and other forward-looking statements will not be achieved. If
one or more of these risks materialise, or should underlying assumptions prove
incorrect, our actual results may differ materially from those anticipated. You should
understand that a number of important factors could cause actual results to differ
materially from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements. These factors are discussed more
fully in our most recent annual report on Form 20-F filed on 28 August 2018 and in
other filings with the United States Securities and Exchange Commission. The list of
factors discussed therein is not exhaustive; when relying on forward-looking
statements to make investment decisions, you should carefully consider both these
factors and other uncertainties and events. Forward-looking statements apply only
as of the date on which they are made, and we do not undertake any obligation to
update or revise any of them, whether as a result of new information, future events
or otherwise.

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