- Strong operational performance across most of the value chain
- Satisfactory operational performance:
- Eurasian Operations up 2%
- Secunda Synfuels Operations down 1% due to planned shutdowns
- Natref volumes down 21%, taking measureable actions to improve operational performance
- Mining ramping-up to pre-strike production run rates
- Sales volumes impacted by supply chain bottlenecks in December 2017:
- Performance Chemicals up 3% and Base Chemicals down 1%
- Liquid fuels sales down 3%
- Headline earnings per share (HEPS) up 17% to R17,67, higher than market guidance; earnings per share (EPS) down 21% to R11,29
- Normalised cash fixed costs up 2% in real terms
- Response Plan cash savings exceeding expectations:
- Delivered R75,6 billion since January 2015 exceeding upper-end of target
- Achieved sustainable annual cash savings of R3,5 billion
- Lake Charles Chemicals Project (LCCP) is on track and 81% complete, project returns positively impacted by US tax reform changes
- Safety Recordable Case Rate (RCR), excluding illnesses, is at 0,30. We regret that two fatalities occurred
- Invested R681 million in skills development and socio-economic development
- Direct and indirect taxes paid to South African Government of R18,2 billion
Johannesburg, South Africa – Sasol today delivered a largely strong set of interim financial results, underpinned by higher crude oil and product prices, increased demand for our specialty chemical products and a satisfactory operational performance across the value chain.
For the six months ended 31 December 2017, earnings attributable to shareholders decreased by 20% to R6,9 billion from R8,7 billion in the prior period. Headline earnings per share (HEPS) increased by 17% to R17,67 and earnings per share (EPS) decreased by 21% to R11,29 compared to the prior period. EPS was negatively impacted by the scrapping of our US gas-to-liquids (GTL) project mounting to R1,1 billion (US$83 million) and a partial impairment of the Canadian shale gas assets of R2,8 billion (CAD281 million). Core HEPS, which is reflective of our sustainable profitability, was up 5% to R18,22. The Board has declared an interim gross cash dividend of R5,00 per share based on Core EPS, from R4,80 per share in the prior period.
Average Brent crude oil prices moved higher by 19% and since December 2017, spot prices have moved closer to the US$70/bbl mark, which if sustained at these levels, are expected to positively impact the company’s results during the second half of financial year 2018. Similarly, Natref refining margins increased by 16% to US$9,73/bbl.
In the chemicals business, there has been a steady increase in most commodity chemical prices and the average margins for most of Sasol’s specialty chemicals products, in dollar terms, have remained resilient.
Excluding the effect of the hedging programme, the average rand/US dollar market exchange rate strengthened by 4% from the prior period to R13,40, and the closing rand/US dollar market exchange rate strengthened by 5% from R13,06 in June 2017 to R12,37. This resulted in translation losses of R1,2 billion on the valuation of the balance sheet compared to translation losses of R341 million in the prior period.
The results were, however, constrained by unfortunate economic conditions in South Africa, which impacted demand for Sasol’s products, operational challenges at its Natref operations, a much stronger closing rand/US dollar exchange rate and the negative impact of re-measurement and once-off items.
Despite the challenging macroeconomic environment, Sasol continued to deliver a strong operational performance.
Operational and financial performance highlights
Performance Chemicals sales volumes increased by 3% mainly due to increased market demand. Normalised Base Chemicals sales volumes decreased by 1% mainly due to lower volumes from Secunda Synfuels Operations (SSO).
Production volumes from Eurasian Operations increased by 2% due to stronger demand and increased plant availability.
Natref’s production volumes were down 21% owing to planned plant shutdowns and an unexpected Eskom electricity supply interruption at the start of the financial period. This, together with softer market demand, lowered our liquid fuels sales volumes by 3%.
Production volumes from SSO decreased by 1% due to a planned shutdown. Based on the current plant performance, Sasol expects to produce 7,7 million tons for the full financial year.
At Mining, stabilising operations post the strike in FY17 has been a challenge. There has been some improvement in production run rates and management will maintain focus on reaching the productivity rates achieved prior to the strike.
“Our sustained focus on cost, cash and capital conservation drove a largely strong set of results, notwithstanding continued macro-economic volatility. The recent recovery in global oil and product prices positively impacted our results, however this was offset by operational challenges at our Natref and mining operations, currency effects and poor economic conditions in South Africa. Encouraging recent developments signal a more stable political and investor friendly outlook for the country, in addition to a more positive global growth outlook with stronger demand in markets where we operate. Our recent safety performance has regrettably been marred by tragic fatalities in our mining operations. We are committed to the safety and health of our employees, communities and the environment. Safety, as one of our core values and number one priority will receive our constant and unwavering attention,” said Joint President and Chief Executive Officer, Bongani Nqwababa.
“We are making steady progress in delivering the LCCP within the revised schedule, as we place increased emphasis on business readiness. Once fully operational, the LCCP will transform Sasol’s earnings profile. The start-up of this world-scale chemicals facility and the implementation of our broad-based black economic empowerment ownership structure, Sasol Khanyisa, are landmark milestones to be delivered this calendar year. Guided by our clear strategic choices, we will continue to enhance our robust foundation to deliver on our refined value-based growth strategy. To this end, exercising disciplined capital allocation remains paramount to ensure we deliver sustainable growth and ongoing value to our shareholders,” said Joint President and Chief Executive Officer, Stephen Cornell.
Sustained cost, cash and capital conservation focus
Sasol’s low oil Response Plan achieved capital conservation and cash savings of R6,2 billion for the period. This brings the total capital and cash conserved since January 2015 to R75,6 billion, which exceeds the target of R65 - R75 billion.
It has also delivered sustainable annual cash savings of R3,5 billion. Together with the Business Performance Enhancement Programme (BPEP) saving, it achieved at least R8,9 billion in sustainable cash cost savings.
Cash fixed costs, excluding capital growth and once-off business establishment costs, increased by 2% in real terms, however, it still expects to track an inflation assumption of 6% for the full year.
Looking ahead, Sasol will maximise value from its existing portfolio of diversified assets through robust asset reviews, continuous improvement and digitalisation initiatives. This will ultimately enhance the company’s competitiveness, reduce its cost base and improve the return on invested capital.
Delivering on growth projects
The company’s focus for the Lake Charles Chemicals Project (LCCP) remains commissioning, operations and business readiness. To this end, the progressive start-up of utilities is ongoing and gaining momentum. As at 31 December 2017, the project was 81% complete with construction execution around 54%. Capital expenditure is currently at US$8,8 billion.
With the priority on business readiness, Sasol continues to engage new markets and prospective customers, with around 90% of LCCP’s specialty chemicals products to be placed with existing customers. Contracts are also in place for all major distribution channel partners.
In Mozambique, US$285 million has already been invested on the Production Sharing Agreement (PSA) field development plan, largely comprising drilling and surface facilities. Nine wells have been successfully drilled and tested relating to the first phase, while drilling the first of two delineation wells relating to the second phase, is underway.
Sasol anticipates oil production to be between the mid to lower-end of the range presented in the field development plan. The gas wells have confirmed that there is sufficient gas to cover initial downstream opportunities.
Several capital projects also reached beneficial operations during the period under review, such as the world’s largest oxygen train in Secunda and the Gemini High Density Polyethylene (HDPE) joint venture in the US. The FT Wax Expansion Project in Sasolburg is also progressing well.
Continued sustainability and heightened investment focus in Southern Africa
Through high impact skills and social investment programmes, Sasol continually responds to the needs of employees and fenceline communities. In the past six months, the company disbursed R680 million globally in skills and social investment programmes, of which the majority was in Southern Africa.
Sasol has invested more than R20 billion on capital projects over the past 12 years to minimise its environmental footprint. The company is also diligently implementing its air quality improvement roadmaps for its South African operations as a key instrument to sustain compliance and apply for further postponements to help in implementing our roadmaps by 2025.
Sasol management is particularly encouraged by recent developments in South Africa that signal a more stable political and investor friendly outlook. A more conducive business environment will create even greater opportunities for Sasol to be a force for good, where our capital investments have totalled over R20 billion over the past three years.
In all markets where Sasol has a presence, from Doha to Shanghai and Marl, Sasol strives to be a credible partner to stakeholders by ensuring they derive benefits from the company’s presence and have a positive association with Sasol.
The year ahead
The current economic climate continues to remain highly volatile and uncertain. While oil price and foreign exchange movements are outside the company’s control and may impact results, management’s focus remains firmly on managing factors within its control, including volume growth, cost optimisation, effective capital allocation, focused financial risk management and maintaining an investment grade credit rating.
Sasol expects an overall strong operational performance for the year ending 30 June 2018, with:
- Liquid fuels sales volumes for the Energy business in Southern Africa to be below 59 million barrels due to lower production at Natref and slower South African economic growth;
- Base Chemicals sales, excluding merchant ethylene, to be between 1% to 3% higher than the prior year, with US dollar product prices recovering during the year;
- Performance Chemicals sales volumes, excluding merchant ethylene, to be between 2% to 3% higher, with average margins for the business remaining resilient;
- Gas production volumes from the Petroleum Production Agreement to be between 114 bscf to 118 bscf;
- An average utilisation rate at ORYX GTL in Qatar to exceed 92%; into account two planned plant shutdowns in the second half of the financial year;
- Normalised cash fixed costs to remain in line within our inflation assumption of 6%;
- The RP cash flow contribution to be close to the upper end of our targeted range of R22 billion to R26 billion by the end of FY18;
- Capital expenditure, including capital accruals, of R54 billion for 2018 and R38 billion in 2019 as we progress with the execution of our growth plan and strategy. Capital estimates may change as a result of exchange rate volatility;
- Our balance sheet gearing up to 44%,
- Rand/US dollar exchange rate to range between R12,50 and R14,00; and
- Average Brent crude oil prices expected to remain between US$55/bbl and US$65/bbl.
The salient dates for holders of ordinary shares and Sasol BEE ordinary shares are:
Declaration date Monday 26 February 2018
Last day for trading to qualify for and participate in the final dividend (cum dividend) 13 March 2018
Trading ex dividend commences Wednesday 14 March 2018
Record date Friday 16 March 2018
Dividend payment date (electronic and certificated register) Monday 19 March 2018
The salient dates for holders of our American Depository Receipts are1:
Ex dividend on New York Stock Exchange (NYSE) Wednesday 14 March 2018
Record date Friday 16 March 2018
Approximate date for currency conversion Wednesday 21 March 2018
Approximate dividend payment date Friday 30 March 2018
1 All dates approximate as the NYSE sets the record date after receipt of the dividend declaration.
Comprehensive additional information is available on Sasol’s website: www.sasol.com
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”.