- Satisfactory operational performance across most of the value chain
- EBITDA up 10% to R52 billion
- Core headline earnings per share down 6% to R36,03
- Headline earnings per share down 22% to R27,44
- Dividend per share of R12,90 (2,8x CHEPS)
- Production performance:
- Secunda Synfuels Operations down 3%
- Eurasian Operations up 3%
- ORYX GTL utilisation at 95%
- Sales volumes:
- Base Chemicals down 1% and Performance Chemicals up 1%
- Energy liquid fuels down 2%
- Lake Charles Chemicals Project is 88% complete and on track
- Safety Recordable Case Rate (RCR), excluding illnesses, improved to 0,27; regrettably four fatalities
- Invested R2 billion in skills and socio-economic development, up 25%
- Implementation of Sasol Khanyisa Black ownership transaction
- R39,5 billion direct and indirect taxes paid to South African government
Johannesburg, South Africa – Sasol today released its annual financial results for the year ended 30 June 2018. Sasol delivered a resilient set of results, underpinned by satisfactory sales and production volumes, delivering a flat normalised real cash fixed cost base and benefitting from much higher crude oil and product margins in the second half of the financial year.
Our underlying cash flow performance was robust. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 10% to R52 billion when compared to the prior year. Earnings before interest and tax (EBIT) declined to R17,7 billion from R31,7 billion in FY17. However, core headline earnings per share (CHEPS) decreased by 6% to R36,03 compared to the prior period and Headline Earnings Per Share (HEPS) decreased by 22% to R27,44.
The difference between CHEPS and EBITDA in the current year is largely due to depreciation of approximately R16 billion and employee share-based payment expenses of R1,5 billion due to the marked improvement of the Sasol share price at the end of the financial year. The share-based payment relating to our Sasol Khanyisa Broad-Based Black Economic Empowerment (B-BBEE) transaction of R3 billion is excluded from CHEPS and EBITDA as it is considered to be a once-off and non-cash item.
A final gross cash dividend of South African 790 cents per ordinary share (30 June 2017 – 780 cents per ordinary share) has been declared for the year ended 30 June 2018.
“Our resilient 2018 performance was underpinned by higher sales and production volumes, particularly in the second half of the year. This was enabled by our continued focus on factors within our control and higher global oil prices, resulting in improved product prices and margins, notwithstanding continued exchange rate volatility. Overall, our operational performance was satisfactory. However unplanned Eskom electricity supply interruptions and two internal outages at Secunda Synfuels Operations, negatively impacted volumes. Enhancing our foundation businesses, a core aspect of our value-based strategy, will be delivered through ensuring safe and sustainable operations, robust asset management strategies, continuous improvement and digitalisation, underscored by disciplined capital allocation,” said Joint President and Chief Executive Officer, Bongani Nqwababa.
“2019 will be a defining year for Sasol with the start-up of the LCCP in the US, a catalyst for transforming our earnings profile. Mozambique, our other key growth area, remains central to our gas strategy where we are stepping up efforts to secure long-term gas feedstock, while delivering on our stakeholder commitments. Improving the flexibility of our balance sheet, through increased cash flow and reduced gearing, and managing an optimal capital structure will be a key focus ahead. We remain confident in delivering on our strategy, which will realise sustainable long-term value for our stakeholders,” said Joint President and Chief Executive Officer, Stephen Cornell.
Although Sasol delivered a strong business performance across most of the value chain, Sasol’s core headline earnings were impacted by the following notable once-off and period close items:
- Translation impact of closing exchange rate
- Mark-to-market valuation of hedges
- Implementation of Khanyisa B-BBEE transaction
- LCCP ramp-up depreciation
- Strike action at Mining and related costs
- Provision for tax litigation matters
Operational and cost performance
Sasol experienced some challenges with regards to our operational performance during the year, largely due to planned and unplanned production interruptions at Secunda Synfuels Operations(SSO), Natref and Mining which impacted production and sales volumes across the value chain. Despite these interruptions, we delivered a stronger overall operational performance in the second half of the year.
Our production run-rates during the fourth quarter of financial year 2018, on an annual average basis, supports our internal targeted run-rates. Sales volumes increased by 1% for our Performance Chemicals business spurred by robust market demand despite Eskom electricity supply interruptions. Base Chemicals reported a 1% decrease in sales volumes mainly due to production interruptions at SSO and a stock build for our high density polyethylene joint venture in the US.
Excluding the impact of Eskom electricity supply interruptions, sales volumes increased by 1%. Liquid fuels sales volumes were down 2% due to lower volumes from SSO and Natref and a challenging South African retail liquid fuels market.
The highlights of our operational performance can be summarised as follows:
- Production volumes from SSO decreased by 3% to 7,6 million tons mainly as a result of unplanned Eskom supply interruptions (1%) and internal outages (2%) during the year. Our production run rates achieved during May and June 2018, supports full year production of approximately 7,8 million tons.
- Production volumes at our Eurasian Operations increased by 3% compared to the prior year largely due to stronger product demand and increased plant availability.
- ORYX GTL delivered a strong production performance, with an average utilisation rate of 95% exceeding our market guidance of 92%.
- Natref’s production volumes were 9% lower due to planned shutdowns and an unexpected electricity supply interruption at the start of the financial period. The second half of the year however yielded much improved production rates despite a planned shutdown in quarter four. The increased volumes in the second half of 2018 partially offsets the lower production volumes recorded in the first half of the year. The production run rate for quarter four was 600m³/h resulting in a full year run rate of 536m³/h. This compares to a run rate of 592m³/h in 2017.
- In terms of our cost performance, cash fixed costs were up 2% in real terms in the first half of the year mainly as a result of mentioned planned and unplanned production interruptions. In the second half of the year, we increased our focus on improving our cost efficiency and managed to keep our normalised cash fixed costs for the year flat in real terms. Our cost management processes remain robust to protect and improve our cost competitive position and still position us in managing our cost base to within our inflation target, while ensuring that we maintain safe and sustainable operations.
Continuous improvement and digitalisation
Our low oil price Response Plan (RP) achieved cumulative cash savings of R85,3 billion since January 2015, exceeding our target range of R65-75 billion. The RP, which we have no formally close at the end of June 2018, has delivered sustainable annual cash fixed cost savings of R3,5 billion. This is in addition to the R5,4 billion sustainable cost savings from our Business Performance Enhancement Programme (BPEP). This brings our cumulative sustainable cost savings to R8,9 billion. At the end of June 2018, we formally closed the RP. This proactive initiative enabled us to manage the balance sheet through periods of oil price volatility, while maintaining our investment grade and ability to fund our growth projects.
To ensure that we remain relevant and competitive and to reap the benefits of a higher oil price, we have introduced a Continuous Improvement (CI) programme. CI is building on the solid foundation established by the BPEP and the RP, and is aimed at ensuring our continued competitiveness at an oil price of US$40/bbl, while enhancing our offering to markets across all the industries in which we compete.
Our medium-term target is to increase our Return on Invested Capital (ROIC) for our foundation businesses by at least two percentage points to 19% by 2022.
Value adding digitalisation improvements, process simplification, selective core function repositioning and asset performance reviews, are also being considered across all our businesses globally as key enablers to achieving our CI targets.
Cash and capital performance
Our net cash position decreased by 42% from R29,3 billion in June 2017 to R17 billion at 30 June 2018, due to the funding of the LCCP and investments to fund growth projects.
Loans raised during the year amounted to R25 billion, mainly for the funding of our US growth project. Short-term debt increases relates to the Sasol Inzalo Public transaction unwinding in September 2018.
Due to the funding of the LCCP, more than 80% of our debt is now US dollar denominated. Given the significantly weaker closing exchange rate of R13,73 and the related translation loss of R4,8 billion arising on the valuation of the balance sheet at year end, gearing increased to 43,2%, which is slightly below our internal ceiling and market guidance. Included in net debt is R6,1 billion of new finance leases mainly relating to Oxygen Train 17 in Secunda and rail storage facilities at the LCCP.
We are actively reviewing our capital structure and funding plan to ensure that we maintain an optimum solvency and liquidity profile.
The unwinding of the Sasol Inzalo transaction has been structured to ensure that our credit ratings are maintained at investment grade and with the least amount of dilution to our shareholders. The Sasol Limited Board approved that Sasol repurchase the shares from Sasol Inzalo Public and settle the outstanding debt of R7,4 billion and a cash top-up for value realised of approximately R600 million in September 2018. This step will eliminate any shareholder dilution as a result of the unwind of the Sasol Inzalo B-BBEE structure.
We therefore expect our gearing to remain around peak levels of 40% to 44% in 2019 due the higher debt associated with the Sasol Inzalo unwind. Accordingly, the Sasol Limited Board approved that we manage the balance sheet to below our peak internal gearing ceiling of 44% for the 2019 financial year.
Advancing projects to enable future growth
We are making steady progress in delivering on our growth pipeline:
Growing our footprint in North America
- We are progressing with the Lake Charles Chemicals Project (LCCP). Overall, the project is 88% complete with capital expenditure amounting to US$9,8 billion. The project remains on track to start up the first three manufacturing units by the end of December 2018. A significant milestone was achieved when steam system went into commissioning earlier than planned. The expected start-up date of the remainder of the manufacturing units remains in the second half of the year. All indications are that the cost of the project will remain within the previous market guidance of US$11,13 billion.
We have updated the LCCP economics with the current view of long-term market assumptions obtained from independent market consultants. Due to the volatile market and differing views of where ethane will be sourced from, the assumptions from the market consultants differ significantly. In a scenario where ethane is sourced from the Gulf area, the internal rate of return (IRR) is 8,0% - 8,5% and assumes an ethane price of between US$30-40 cents per gallon. The alternative view which assumes that ethane is sourced further away from the Gulf yields an IRR of 5,2% - 5,7% as the ethane price is between US$60-65 cents per gallon. In both of these scenarios the oil price is assumed to be US$60-80/bbl and the EBITDA at steady state ranges between US$1,2 billion to US$1,3 billion. At spot prices, using the last quarter of 2018 as a reference, the IRR is 8,5% - 8,9%. The spot WACC rate for the US at 30 June 2018 was 7,68%.
Focusing on our asset base in Africa
- Our strategic R14 billion mine replacement programme is nearing completion. Phase two of the Impumelelo colliery project is on track to be completed within budget, late in the 2019 calendar year. The Shondoni colliery underground infrastructure was completed during May 2018 and the colliery was officially inaugurated on 5 July 2018. The phases completed to date were completed within budget and schedule.
- In Mozambique, the Production Sharing Agreement (PSA) Phase 1 and Phase 2 drilling activities have been completed. In total, 11 wells were drilled comprising seven oil wells and four gas wells.
- In continuing to execute our strategy, we have concluded a farm-in into the DE8 block in Gabon where we now hold 40% working interest of that block. An exploration well drilled during the year was unsuccessful and written off.
Unwinding of Sasol Inzalo B-BBEE transaction
- As announced on 26 June 2018, Sasol settled the Sasol Inzalo Groups debt of approximately R4,6 billion in June 2018 by utilising existing cash to repurchase up to 9,5 million preferred ordinary shares from Sasol Inzalo Groups Funding (Pty) Ltd at a 30 day VWAP of R475,03, and funded the residual shortfall on the third party debt of R59 million. The Sasol Inzalo Public debt becomes due in September 2018. The Sasol Limited Board has approved that Sasol settle the Sasol Inzalo Public debt in the same manner as Sasol Inzalo Groups so as to limit dilution on our shareholders, while maintaining investment grade ratings by utilising existing cash or credit facilities to repurchase up to 16,1 million preferred ordinary shares from Sasol Inzalo Public Funding (Pty) Ltd. Based on current share price and forecast debt balances, there could be residual value, after settlement of third party debt, which would be distributed to Sasol Inzalo participants.
Profit outlook* – strong production performance and cost reductions to continue
The current economic climate continues to remain highly volatile and uncertain. While oil price and foreign exchange movements are outside our control and may impact our results, our focus remains firmly on managing factors within our control, including volume growth, cost optimisation, effective capital allocation, focused financial risk management and maintaining an investment grade credit rating.
We expect an overall strong operational performance for 2019, with:
- SSO volumes of between 7,6 to 7,7 million tons impacted by a planned full shutdown in 2019;
- Liquid fuels sales of approximately 57 to 58 million barrels due to a planned full shutdown at SSO;
- Base Chemicals sales volumes, excluding US produced products, to be 2% – 3% higher than the prior year, with US dollar product pricing expected to follow Brent crude oil prices. Our US HDPE plant will contribute for the full year, while LCCP is expected to start contributing during the second half of the year.
- Performance Chemicals sales volumes to be 2% – 4% higher, excluding the LCCP;
- Gas production volumes from the Petroleum Production Agreement in Mozambique to be between 114 bscf to 118 bscf;
- We expect to achieve an average utilisation rate of 95% at ORYX GTL in Qatar;
- Normalised cash fixed costs to remain in line within our inflation assumption of 6%;
- Capital expenditure, including capital accruals, of R38 billion for 2019 and R30 billion for 2020 as we progress with the execution of our growth plan and strategy. Capital estimates may change as a result of exchange rate volatility and other factors;
- Our balance sheet gearing to range between 40 – 44%;
- Rand/US dollar exchange rate to range between R12,50 and R13,50; and
- Average Brent crude oil prices to remain between US$65/bbl and US$75/bbl.
*The financial information contained in this business performance outlook is the responsibility of the directors and in accordance with standard practice, it is noted that this information has not been audited and reported on by the company’s auditors.
Declaration of cash dividend number 78
A final gross cash dividend of South African 790 cents per share (30 June 2017 – 780 cents per ordinary share) has been declared for the year ended 30 June 2018. The cash dividend is payable on the ordinary shares and the Sasol BEE ordinary shares. The Board is satisfied that the liquidity and solvency of the company, as well as capital adequacy remaining after payment of the dividend is sufficient to support the current operations for the ensuing year. The dividend has been declared out of retained earnings (income reserves). The South African dividend withholding tax rate is 20%. At the declaration date, there are 623 081 550 ordinary, 16 085 199 preferred ordinary and 6 394 179 Sasol BEE ordinary shares in issue. The net dividend amount payable to shareholders who are not exempt from the dividend withholding tax, is 632 cents per share, while the dividend amount payable to shareholders who are exempt from dividend withholding tax is 790 cents per share.
The salient dates for holders of ordinary shares and Sasol BEE ordinary shares are:
Declaration date Monday, 20 August 2018
Last day for trading to qualify for and participate in the final dividend
(cum dividend) Tuesday, 4 September 2018
Trading ex dividend commences Wednesday, 5 September 2018
Record date Friday, 7 September 2018
Dividend payment date
(electronic and certificated register) Monday, 10 September 2018
The salient dates for holders of our American Depository Receipts are1:
Ex dividend on New York Stock Exchange (NYSE) Wednesday, 5 September 2018
Record date Friday, 7 September 2018
Approximate date for currency conversion Wednesday, 12 September 2018
Approximate dividend payment date Friday, 21 September 2018
1 All dates approximate as the NYSE sets the record date after receipt of the dividend declaration.
On Monday, 10 September 2018, dividends due to certificated shareholders on the South African registry will either be electronically transferred to shareholders’ bank accounts or, in the absence of suitable mandates, dividend cheques will be posted to such shareholders. Shareholders who hold dematerialised shares will have their accounts held by their CSDP or broker credited on Monday, 10 September 2018. Share certificates may not be dematerialised
or rematerialised between 5 September 2018 and 7 September 2018, both days inclusive.
Comprehensive additional information is available on our website:
Sasol may, in this document, make certain statements that are not historical facts that 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, statements regarding exchange rate fluctuations, volume growth, increases in market share, total shareholder return, executing our growth projects (including LCCP), oil and gas reserves and cost reductions, including in connection with our BPEP, RP and our business performance outlook. 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.
Please note: One billion is defined as one thousand million. bbl – barrel, bscf – billion standard cubic feet, mmscf – million standard cubic feet, oil references brent crude, mmboe – million barrels oil equivalent. All references to years refer to the financial year 30 June. Any reference to a calendar year is prefaced by the word “calendar”.