Sasol Interim Performance Resilient Despite Volatility

JOHANNESBURG, February 27, 2017 /PRNewswire/ --

• Strong business performance across most of the value chain
• Production volumes:
  • Up 1% for Secunda Synfuels Operations
  • Up 5% for Eurasian Operations
• Normalised sales volumes:
  • Base Chemicals up 11% and Performance Chemicals up 2%
  • Energy liquid fuels down 2%
• Business Performance Enhancement Programme delivered:
  • Sustainable actual cost savings of R4,9bn
  • Target exit run rate of R5,4bn by 2018
• Response Plan cash savings exceeding expectations:
  • R17,8bn cash savings delivered for the period
  • Target increased to deliver full year cash savings of R26bn
• Lake Charles Chemicals Project is on track and 64% complete
• Headline earnings per share down 38% to R15,12, earnings per share up 19% to R14,21
• Safety Recordable Case Rate (RCR), excluding illnesses, improved to 0,27. We regret that three fatalities occurred
• Cash fixed costs, including the mining strike cost, 1% down in real terms
• Invested R471 million in skills development and socioeconomic development
• Direct and indirect taxes paid to South African Government R15,4 billion

Sasol today released its interim results for the six months ended 31 December 2016. Earnings attributable to shareholders for the six months ended 31 December 2016 increased by 19% to R8,7 billion from R7,3 billion in the prior period. Headline earnings per share (HEPS) decreased by 38% to R15,12 and earnings per share (EPS) increased by 19% to R14,21 compared to the prior period. Operating profit decreased by 8% to R13,7 billion compared to the prior period. An interim gross cash dividend of South African 480,00 cents per ordinary share (31 December 2015 - 570,00 cents per ordinary share) has been declared for the six months ended 31 December 2016.

Although business performance was mostly in line with our expectations, Sasol's profitability, period on period, and as reflected in HEPS, was negatively impacted by the following items:  

• The strengthening of the Rand against the US dollar to R13,74 at 31 December 2016 (30 June 2016: R14,71) resulted in translation losses of approximately R1,3 billion on the valuation of the balance sheet, compared to translation gains of R2,6 billion in the prior period (including foreign exchange contracts). The valuation impact of the stronger closing exchange rate for the period under review negatively impacted earnings by approximately R1,46 per share.
• The impact of the once-off prolonged strike action at our Secunda mining operations resulted in an additional net cost of R1 billion or R1,06 per share.
• The reversal of a provision of R2,3 billion (US$166 million) or R3,77 per share in the prior period based on a favourable ruling received from the Tax Appeal Tribunal in Nigeria relating to the Escravos Gas-to-Liquids (EGTL) project.

HEPS, normalised for these once-off adjustments and translation effects, amounted to R18,62 per share, which is 4% higher compared to normalised HEPS for the prior period of R17,96.

"Notwithstanding the volatile macro-economic environment in which we operate, Sasol delivered a resilient performance. This is attributable to our continued sharpened focus on business and capital excellence, advancement of our value-based capital projects, consistent delivery against our cost reduction and cash savings targets and a heightened focus on macro-economic risk mitigations to protect our balance sheet. These decisive actions were underpinned by a robust business performance from our global assets. Furthermore, we continue pursuing our zero harm focus, building a resilient organisation for the future and nurturing our foundation business, while driving value based growth as we consider our future investment opportunities," said Joint President and Chief Executive Officer, Bongani Nqwababa.

"Advancing our value based growth strategy continues through our near-term focus on Southern Africa and North America. Our Lake Charles Chemicals Project in the United States is now 64% complete, and remains on track for start-up of the first units in the second half of 2018. The fundamental drivers for this investment remain sound, and will enable Sasol's continued growth in a low feedstock cost region. In Mozambique, we remain committed to our growth plans and will continue to partner with the country's government and other stakeholders on projects that will help stimulate socio-economic growth.  We are confident that the economics to develop the Production Sharing Agreement license area remain positive, with four wells completed, as part of our drilling campaign, already showing promising results," said Joint President and Chief Executive Officer, Stephen Cornell.

Business performance in Energy and Chemicals businesses 

Overall, Sasol delivered a strong business performance across most of the value chain. Secunda Synfuels' production volumes increased by 1% and our Eurasian operations increased production volumes by 5% on the back of stronger demand. Natref's production volumes were down 7% mainly due to plant shutdowns during the period under review. Normalised sales volumes increased by 11% for our Base Chemicals business and 2% for our Performance Chemicals business compared to the prior period mainly on the back of stronger demand and improved plant stability. Liquid fuels sales volumes decreased by 2% due to the Natref planned shutdowns and more volumes from Secunda Synfuels Operations (SSO) being allocated to the higher margin yielding chemical businesses. ORYX GTL achieved an average utilisation rate of 95% with the run-rate of production in line with our previous market guidance.

Sasol's Secunda mining operations experienced a challenging six months with the onset of a protected strike action, which commenced in August 2016, by the Association of Mineworkers and Construction Union (AMCU). Notwithstanding a 16% decrease in mining production volumes resulting from the strike action, Mining continued to deliver our full coal supply commitment to the integrated Sasol value chain through external coal purchases and increased gas consumption at Secunda Synfuels Operations. The profitability of the mining business was significantly impacted by the R1 billion net additional cost as a result of the strike.

Cost discipline enhancing resilience 

Sasol continued to drive our cost containment programme and managed cash fixed costs well below inflation in nominal terms, when compared to the prior period. Excluding the impact of inflation, our cash fixed costs, including the mining strike costs, reduced by 1% in real terms compared to the prior period. The strong cost performance was achieved by sustainable delivery of our Business Performance Enhancement Programme (BPEP) and Response Plan (RP).

As part of the BPEP, we delivered sustainable cost savings of R4,9 billion, exceeding our December 2016 exit run rate target by R0,2 billion. We are confident that we will meet or exceed our targeted sustainable savings at an exit run rate of R5,4 billion by the end of 2018.

Our comprehensive low oil price RP, focusing on cash conservation to counter a lower-for-much-longer oil price reality, has continued to yield positive cash savings in line with our 2017 targets, despite margin contraction and difficulties experienced in placing certain product. The RP realised R17,8 billion of cash savings for the period. We have increased our full year cash savings target from R22 billion to R26 billion, mainly due to the reprioritisation of our capital portfolio. The RP places the company in a strong position to operate profitably within a US$40-50/bbl oil price environment. We expect our sustainable cash cost savings from our RP to be R2,5 billion by 2019, in addition to the R5,4bn sustainable savings from our BPEP.

Actual capital expenditure, including accruals, amounted to R30,2 billion. This includes R17,4 billion (US$1,2 billion) relating to the Lake Charles Chemicals Project (LCCP). We have revised our capital expenditure estimate from R75 billion to R66 billion for the full year, largely due to the impact of the stronger rand/US dollar exchange rate coupled with our cash conservation initiatives and active management of our capital portfolio.

Cash generation and position 

Our net cash position decreased from R52 billion in June 2016 to R28 billion at 31 December 2016, mainly due to the funding of the LCCP and the effect of a stronger closing rand/US dollar exchange rate. Loans raised during the period amounted to R2 billion, mainly for the funding of our growth projects.

During the current financial year, Sasol entered into a number of hedges to mitigate specific financial risks and provide protection against unforeseen movements in oil prices, interest rates, currency movements, and commodity and final product prices. Approximately 50% of the crude oil exposure was hedged with crude oil put options for 2017 at a net price of ~US$49,50/bbl. A total net loss of R515 million (US$37 million) was recognised during the period. To manage the exposure to the US dollar, approximately 12% of the rand/US dollar exposure was hedged with zero-cost collar instruments at a floor of ~R14,10 for specific periods in 2018. A net gain of R283 million (US$20 million) was recognised during the period. Should attractive hedges become available in the market at an acceptable cost, we will enter into additional hedges as mitigation against these financial risks.

Cash generated by operating activities decreased by 37% to R16,8 billion compared with R26,7 billion in the prior period. Notwithstanding reduced cash flows, our balance sheet has the capacity to lever up, as we continue to execute our growth plans and return value to our shareholders. Accordingly, in support of our funding strategy, gearing increased to 25%, which is consistent with our previous market guidance of 20% to 44%.

To manage the impact of price volatility and the low oil price environment, the Sasol Limited Board (Board) concluded that our internal gearing ceiling will remain at 44% until the end of 2018. The net debt: EBITDA ratio is forecasted to be below 2,0 times. We actively manage our capital structure and funding plan to ensure that we maintain an optimum solvency and liquidity profile.

Advancing projects to enable future growth 

We are encouraged by the headway we are making in delivering on our project pipeline:

Growing our footprint in North America  

• Overall construction on the LCCP continues on all fronts, with most engineering and procurement activities nearing completion during the period. Total capital spent amounts to US$6,0 billion, and the overall project completion is 64%. The total forecasted capital cost for the project remains within the approved US$11 billion budget and approved schedule. The project's contingency which, measured against industry norms for this stage of project completion, is still considered sufficient to effectively complete the project to beneficial operation (BO) within the US$11 billion budget. Although unplanned event-driven risks may still impact the execution and cost of the project, we are confident that the remaining construction, procurement, execution and business readiness risks can be managed within the budget as a result of these changes. We still consider the LCCP to be a value-based investment that will return sustainable value to our shareholders for many years into the future. The project returns are still forecast to be above our weighted average cost of capital (WACC).
• Construction of our 50% joint venture high-density polyethylene plant with Ineos Olefins and Polymers USA is more than 90% complete and is on track for mechanical completion by the middle of the 2017 calendar year. The plant will be the largest bi-modal high density polyethylene (HDPE) manufacturing facility in the US (470 kt per annum) and will produce some of the most cost competitive performance resins based on InnoveneTM S technology. We continue to work with the operator (our joint venture partner) to manage construction delays that have mainly resulted from adverse weather conditions and poor craft labour productivity. Together with our partner, we have successfully approached the market and attained a favourable reduction in the financing rate for the remaining term of the facility.  The project economics remain strong and returns are currently above WACC despite the project's cost increase. The market conditions for start-up continue to be favourable with low feedstock cost and strong polyethylene market demand projected in 2017.

Focusing on our asset base in Southern Africa  

• Our strategic R14,0 billion mine replacement programme, which will ensure uninterrupted coal supply to SSO in order to support Sasol's strategy to operate its southern African facilities until 2050, is nearing completion. The total programme is expected to be completed below budget and within schedule. The Shondoni colliery achieved BO, within budget, during April 2016 and will be fully completed during the second half of the 2017 calendar year. Phase 2 of the Impumelelo colliery project for R0,9 billion commenced during the first half of the 2016 calendar year and is on track to be completed within budget, late in the 2019 calendar year.
• The expansion of our FTWEP facility in Sasolburg is progressing well. BO for phase two is on track for the end of the third quarter of 2017. The project economics for this project remain sound. The total project cost for both phases is estimated at R13,5 billion.
• The Loop Line 2 project on the Mozambique to Secunda Pipeline (MSP) reached BO ahead of schedule on 2 November 2016 at a total project cost below budget, while delivering a safety recordable case rate of zero. Loop Line 2 will increase the MSP's available annual gas transportation capacity from 169,4 bscf to 191 bscf and renders a return in line with our investment hurdle rate.
• The first phase of the development of the Production Sharing Agreement (PSA) licence area remains on budget and schedule. To date, four wells have been drilled and completed, two gas wells in the Temane G8 reservoir and two oil wells in the Inhassoro G6 reservoir.  Drilling results have been in line with expectations. The third oil well (or fifth well) was spudded in early February 2017. In addition, as part of the PSA programme, the first onshore Mozambique 3D seismic programme has been successfully undertaken.

Profit outlook* - strong production performance and cost reductions to continue    

The current economic climate remains volatile and uncertain. While oil price and foreign exchange movements are outside our control and may impact on 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 cash conservation.

We expect an overall strong operational performance for 2017, with:

• Liquid fuels sales volumes for the Energy business in southern Africa to be approximately 61 million barrels;
• Base Chemicals sales volumes to be between 4% to 6% higher than the prior year, with US dollar product prices recovering;
• Performance Chemicals sales volumes to be between 1% to 2% higher, with average margins for the business remaining resilient;
• An average utilisation rate at ORYX GTL in Qatar of above 90% for the remainder of the financial year;
• Normalised cash fixed costs to remain in line with SA PPI;
• The RP cash flow contribution to range between R22 billion and R26 billion;
• BPEP cash cost savings to achieve an annual run rate of R5,4 billion by 2018;
• Capital expenditure, including capital accruals, of R66 billion for 2017 and R60 billion in 2018 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 a level of between 30% and 35%, with net debt:EBITDA being managed to below 2,0 times;
• Average Brent crude oil prices expected to remain between US$50/bbl and US$55/bbl; and
• Ongoing rand/US dollar volatility due to various factors, including the pending outcome of the next review of the South African sovereign credit rating and capital inflows.

*The financial information contained in this profit outlook and other financial forecasts mentioned elsewhere in the financial overview are the responsibility of the directors and in accordance with standard practice, it is noted that this information has not been reviewed and reported on by the company's auditors.  

On Monday, 20 March 2017, 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, 20 March 2017. Share certificates may not be dematerialised or rematerialised between 15 March 2017 and 17 March 2017, both days inclusive.

Comprehensive additional information is available on our website: http://www.sasol.com

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, statements regarding exchange rate fluctuations, volume growth, increases in market share, total shareholder return and cost reductions. Words such as "believe", "anticipate", "expect", "intend", "seek", "will", "plan", "could", "may", "endeavour" 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 under the Securities Exchange Act of 1934 on Form 20-F filed on 27 September 2016 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.

About Sasol:

Sasol is an international integrated chemicals and energy company that leverages technologies and the expertise of our 30 300 people working in 33 countries. We develop and commercialise technologies, and build and operate world-scale facilities to produce a range of high-value product streams, including liquid fuels, chemicals and low-carbon electricity.

Issued by:

Alex Anderson, Head of Group Media Relations
Direct telephone: +27-(0)-10-344-6509; Mobile: +27-(0)-71-600-9605;
[email protected]

Matebello Motloung, Senior Specialist: Media Relations
Direct telephone: +27-(0)-11-344-9256, Mobile: +27-(0)-83-773-9457
[email protected]

Cavan Hill, Senior Vice President: Investor Relations
Direct telephone: +27-(0)-10-344-9280
[email protected]

SOURCE Sasol Limited