JOHANNESBURG, Feb. 24, 2020 /PRNewswire/ -- Financial
performance and position
- Working capital ratio of 15%; through focused management
actions
- Normalised cash fixed cost increased by 5,4% within inflation
guidance
- Net debt: EBITDA* of 2,9 times; below updated bank covenant of
3,5 times
- Gearing of 64,5% at upper end of guidance
- EPS down 73% to R6,56 and HEPS down 74% to R5,94
- Cash generated by operating activities down 21% to R19,6
billion
- FY20 interim dividend passed to protect and strengthen balance
sheet
* Per the Revolving credit facility and US dollar Term Loan
covenant definition
Resilient operational performance
- Production:
-
- Synfuels production volumes 4% up; full year production
guidance 7,7mt to 7,8mt
- Eurasian based assets production volumes up 2%
- ORYX GTL utilisation of 98%; extended planned shutdown will
impact full year
- Natref production volumes 8% down due to planned shutdown
- HDPE continues to produce above expectation
- Sales:
-
- Base Chemicals sales volumes up 21%
- Performance Chemicals sales volumes up 6%
- Liquid fuels sales volumes up marginally
Lake Charles Chemicals Project (LCCP) updated
- 99% overall project completion
- Project safety recordable case rate (RCR) of 0,10
- Cost tracking US$12,8 billion;
~80% production capacity in use
- US ethane cracker producing to plan within pipeline
specifications
- ETO unit achieved beneficial operation on 30 January 2020
- LLDPE and EO/EG units producing at targeted levels
- LDPE unit beneficial operation expected in second half of
calendar year 2020
Positioning for a sustainable future
- Safety RCR of 0,27, excluding illnesses; regrettably two
fatalities
- Achieved Level 3 B-BBEE**
status
- R784 million invested globally in skills and socioeconomic
development
- R14,4 billion in procurement spend with SA black-owned
businesses
- GHG emission reduction road map on track for sharing at 2020
Capital Markets Day
** Broad-based Black Economic Empowerment
Earnings performancei,ii,iii
We delivered a satisfactory set of business results for the six
months ended 31 December 2019, with
increased volumes while cost and working capital tracked our
internal targets contributing to the balance sheet covenant levels
being maintained within market guidance. The financial results were
impacted mostly by a weak macroeconomic environment, which resulted
in lower margins, and the LCCP being in a ramp-up phase.
Earnings decreased by 72% to R4,5 billion compared to the prior
period. This resulted from a 9% decrease in the rand per barrel
price of Brent crude oil, softer global chemical prices and
refining margins, lower productivity at our Mining operations and a
negative contribution from the LCCP. Our gross margin percentage
decreased by 2% compared to the prior period driven by a softer
macroeconomic environment negatively impacting supply-demand
dynamics especially in our chemicals businesses. We anticipate
softer chemical prices over the next 12 to 24 months and expect
structural recovery over the medium to long-term. Our Energy
business was impacted by lower crude oil prices as well as lower
refining margins due to weaker demand.
As the LCCP units progress through the sequential beneficial
operation schedule, our revenues do not yet match the costs
expensed. We do expect that for the second half of FY20 revenue
will match the costs expensed better and that the LCCP will
generate positive earnings before interest, tax, depreciation and
amortisation (EBITDA). The LCCP negatively impacted earnings by
R2,8 billion (EBITDA of R1,1 billion and R1,7 billion in additional
depreciation charges). Earnings were further impacted by
approximately R2,0 billion in finance charges for the period as the
LCCP units reach beneficial operation.
Total cash fixed cost increased by 10% to R30,5 billion as a
result of United States (US)
growth costs and inflation. Normalised cash fixed cost* increased
by 5,4%, which is within our internal inflation target of 6%. Our
cost management processes remain robust while we continue to
evaluate further opportunities to embed our continuous improvement
efforts. The sustained competitiveness of our business remains top
of mind.
As a result of the aforementioned factors our key financial
metrics were impacted as follows:
- Earnings before interest and tax (EBIT) decreased by 53% to
R9,9 billion compared to the prior period;
- Adjusted EBITDAiv declined by 27% from R26,8 billion
in the prior period to R19,6 billion;
- Basic earnings per share (EPS) decreased by 73% to R6,56 per
share compared to the prior period;
- Headline earnings per share (HEPS) decreased by 74% to R5,94
per share compared to the prior period; and
- Core headline earnings per sharev (CHEPS) decreased
by 57% to R9,20 compared to the prior period.
* Excludes US growth and business establishment costs.
Earnings analysis
Key
metrics
|
Change
%
|
Half
year
31 Dec
19
Rm
|
Half
year
31 Dec
19
Rm
|
EBIT (R
million)
|
(53)
|
9
853
|
20 791
|
Depreciation and
amortisation
|
|
10
977
|
8 392
|
Earnings before
interest, tax, depreciation and amortisation
(EBITDA)
|
|
20
830
|
29 183
|
Remeasurement
items
|
|
(169)
|
(599)
|
Share-based
payments¹
|
|
795
|
579
|
Unrealised hedging
gains²
|
|
(1
013)
|
(2 508)
|
Unrealised
translation gains³
|
|
(465)
|
(94)
|
Change in discount
rate of environmental provisions
|
|
(383)
|
230
|
Adjusted
EBITDAiv
|
(27)
|
19
595
|
26 791
|
|
1 Share-based
payments includes both cash-settled and equity-settled share-based
payment charges.
|
2 Consists of
unrealised hedging gains on Group hedging activities.
|
3 Unrealised
translation gains on the translation of foreign currency
denominated loans.
|
|
Core headline earnings per sharev
reconciliation
Key
metrics
|
Change
%
|
Half
year
31 Dec
19
Rm
|
Half
year
31 Dec
19
Rm
|
Basic earnings per
share
|
(53)
|
9
853
|
20 791
|
Net remeasurement
items
|
|
10
977
|
8 392
|
Headline earnings
per share
|
|
20
830
|
29 183
|
Translation impact of
closing exchange rate¹
|
|
(169)
|
(599)
|
Realised and
unrealised net gains on hedging activities²
|
|
795
|
579
|
Khanyisa B-BBEE
transaction³
|
|
(1
013)
|
(2 508)
|
LCCP losses during
ramp-up⁴
|
|
(465)
|
(94)
|
Provision for tax
litigation matters⁵
|
|
(383)
|
230
|
Core headline
earnings per sharev
|
(27)
|
19
595
|
26 791
|
|
1 Translation
losses/(gains) arising on the translation of monetary assets and
liabilities into functional currency.
|
2 Consists of
realised and unrealised net gains on Group hedging activities of
R0,5 billion compared to R1,1 billion in the prior period, incurred
within the Group Functions segment, and net gains on foreign
exchange contracts of R0,5 billion compared to net losses of R0,7
billion in the prior period.
|
3 Sasol
Khanyisa equity-settled share-based payments charges recorded in
the employee-related expenditure line in the income
statement.
|
4 Losses
totalling R2,8 billion (being R1,6 billion and R1,2 billion
incurred by the Performance Chemicals and Base Chemicals segments
respectively) relating to negative EBITDA of R1,1 billion and
depreciation of R1,7 billion attributable to the LCCP while in
ramp-up phase.
|
5 Sasol Oil tax
matter settlement including interest and penalties.
|
|
Balance sheet management
Our gearing increased from 56,3% at 30
June 2019 to 64,5% which is at the upper end of our previous
market guidance of 55% to 65%. The main reasons for the increase in
gearing are the adoption of the IFRS 16 'Leases' accounting
standard (4% increase) and the net earnings impact of the LCCP
being in a ramp-up phase. Consistent with our long-term commitment
to maintain our investment grade credit rating, we continue to
actively manage the balance sheet with the objective of maintaining
a healthy liquidity position and a balanced debt maturity
profile.
The lenders have agreed to increase the covenant level to 3,5
times for the financial reporting periods ending December 2019 and June
2020. Our net debt: EBITDA at 31
December 2019, based on the Revolving Credit facility and US
dollar Term Loan covenant definition, was 2,9 times, which remains
well below the covenant.
We secured incremental US dollar liquidity through a
US$1 billion syndicated loan facility
for up to 18 months, and bilateral facilities (with a combined
quantum of US$250 million) with a
tenor of two years. These facilities enhance our US dollar
liquidity position during the peak gearing phase as the LCCP ramps
up.
In the South African market, we have both bank loan facilities
and an R8,0 billion Domestic Medium- Term Note Programme (DMTN)
which was established in 2017. In August
2019, we issued our inaugural paper to the value of R2,2
billion in the local debt market under this DMTN programme.
Cash generated by operating activities decreased by 21% to R19,6
billion compared to R24,8 billion in the prior period. This was
largely due to the softer macroeconomic environment and losses
attributable to the LCCP. The decrease was partially negated by
another strong working capital and cost performance from the
foundation business. Working capital decreased by R433 million
during the period mainly as a result of focused management
actions.
Our net cash on hand position decreased from R15,8 billion as at
30 June 2019 to R12,7 billion.
Actual capital expenditure, including accruals, amounted to R21
billion. This includes R10 billion (US$0,7
billion) relating to the LCCP and is in line with our
internal targets.
In line with our financial risk management framework, we
continue to make good progress with hedging our currency and ethane
exposure. For further details of our open hedge positions we refer
you to our Analyst Book (www.sasol.com).
Dividend
After careful consideration of our current leverage and the
volatility in the macroeconomic environment, the Board of directors
(Board) decided to pass the interim dividend to protect and
strengthen our balance sheet. This is a decision that was not taken
lightly as we remain committed to delivering shareholder value,
however, given the current position of our balance sheet, the Board
made this decision in the long-term interest of our shareholders.
We continue to ensure that we deliver the key elements of our
strategy, particularly the completion of the LCCP.
Enhancing shareholder value through portfolio
optimisation
As previously announced, we initiated a review of our portfolio
in 2017 to ensure that our capital is invested effectively. We
reviewed the entire portfolio to optimise the potential of each
asset and focus only on assets that can generate attractive returns
through the cycle, are fit for purpose and are core to our
long-term strategic focus. This asset review process is now
substantially complete and we have identified a number of assets
for divestment or equity dilution, potentially generating proceeds
exceeding US$2 billion. Together with
the partial divestment from the explosives business, we have
concluded transactions amounting to 20% of the target and are
currently reviewing and assessing the potential of other disposals.
We are not relying on any disposals to deleverage the balance sheet
and will be highly disciplined in all portfolio actions to ensure
they enhance shareholder value. Protecting value and ensuring
future quality of earnings are key metrics before an asset disposal
mandate is provided and executed.
Update on Lake Charles Chemicals Project (LCCP)
Ongoing focus as we ramp up plants to beneficial operation
At the LCCP, we maintain our focus on safely improving
productivity in the field and bringing the plants into beneficial
operation. The project continued with its exceptional safety record
with a recordable case rate (RCR) of 0,10.
At the end of December 2019,
engineering and procurement activities were substantially complete
and construction progress was at 98%, with overall project
completion at 99%.
The investigation into the incident which occurred at the LDPE
unit in January 2020 is complete. The
root cause analysis determined that a piping support structure,
within the LDPE emergency vent system, failed during commissioning
causing a pipe to dislodge. No major equipment was damaged, and the
incident was isolated. Remediation has commenced, however, the
replacement of the high pressure piping material components have
long lead times. We expect beneficial operation of the LDPE unit to
be delayed to the second half of calendar year 2020. Parallel
commissioning activities on the
remainder of the LDPE unit continue during remediation and every
effort will be made to expedite the restoration project. The
overall LCCP cost estimate is tracking US$12,8 billion, within our previous guidance of
US$12,6 billion to US$12,9 billion, and our EBITDA estimate of
US$50 million to US$100 million for FY20 remains.
During the time of the delay in the LDPE unit startup, the
ethylene produced by the cracker and destined for the unit is sold
externally. All previously commissioned units were unaffected and
are operating to plan.
The ETO unit, the fourth of seven units, achieved beneficial
operation on 30 January 2020. The
unit has a nameplate capacity of 100 kilo tons (kt) per year, forms
part of our ethylene oxide value chain and adds to the capacity of
our Performance Chemicals product volumes already produced and sold
on both a regional and global scale. The ETO unit follows the
linear low-density polyethylene (LLDPE), world-scale ethane cracker
and ethylene oxide/ethylene glycol (EO/EG) facilities, which all
reached beneficial operation last year and are operating to plan.
This provides additional flexibility to our ethylene oxide value
chain and will enable us to divert some volume away from the
mono-ethylene glycol (MEG) product line and support increased
margins. As previously communicated, we still expect the Ziegler
and Guerbet plants to achieve beneficial operation in the last
quarter of FY20.
The ethane cracker is ramping up following the successful
replacement of the acetylene reactor catalyst in December 2019. The plant is expected to operate
according to plan for the remainder of the year. The LLDPE plant
and the EO value chain are ramping up to plan with our learnings to
be carried over to the LDPE ramp-up.
The LCCP remains a world-scale, first quartile
feedstock-advantaged plant, highly integrated across a diverse
product slate with high margin products and world class logistics
and infrastructure.
The short-term market outlook for ethane and product pricing
remains volatile and estimates will be updated periodically. We
expect EBITDA in the range of US$600
million to US$750 million for
FY21.
i Forward-looking statements are the responsibility of the
Directors and in accordance with standard practice, it is noted
that this statement has not been reviewed and reported on by the
Company's auditors.
ii All comparisons to the prior period refer to the six
months ended 31 December 2018. All
numbers are quoted on a pre-tax basis, except for earnings
attributable to shareholders.
iii All other operational and financial measures (such as
cash fixed cost) have not been reviewed and reported on by the
Company's auditors.
iv Adjusted EBITDA is calculated by adjusting EBIT for
depreciation and amortisation, share-based payments, remeasurement
items, movement in environmental provisions due to discount rate
changes, unrealised translation gains and losses, and unrealised
gains and losses on Group hedging activities. We believe Adjusted
EBITDA is a useful measure of the Group's underlying cash flow
performance. However, this is not a defined term under IFRS and may
not be comparable with similarly titled measures reported by other
companies. (Adjusted EBITDA constitutes pro forma financial
information in terms of the JSE Limited Listings Requirements and
should be read in conjunction with the basis of preparation and pro
forma financial information notes as set out on page 21).
v Core HEPS is calculated by adjusting headline earnings
per share with certain once-off items (provision for tax litigation
matters and LCCP cash fixed cost with limited corresponding gross
margin), period close adjustments and depreciation and amortisation
of capital projects (exceeding R4 billion) which have reached
beneficial operation and are still ramping up, and share-based
payments on implementation of B-BBEE transactions. Period close
adjustments include translation gains and losses arising from
translation of monetary assets and liabilities into functional
currency and realised and unrealised net gains on Group hedging
activities at period end in order to remove volatility from
earnings from period to period. (Core HEPS constitutes pro forma
financial information in terms of the JSE Limited Listings
Requirements and should be read in conjunction with the basis of
preparation and pro forma financial information notes as set out on
page 21).
The full announcement and the HY20 interim financial results
will be available on the Company's website at
https://www.sasol.com/investor-centre/financial-reporting/annual-integrated-report/interim-results.
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, expectations, 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, cost reductions, our Continuous Improvement
(CI) initiative and 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 and others are discussed more fully in
our most recent annual report on Form 20-F filed on 28 October 2019 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 ended 30
June.
Any reference to a calendar year is prefaced by the word
"calendar".
Comprehensive additional information is available on our
website: www.sasol.com
For Sasol Investor Relations:
Feroza Syed, Chief Investor Relations
Officer
Direct telephone: +27(0)10-344-7778
investor.relations@sasol.com
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SOURCE Sasol Limited