Chance for a crack at Sasol
Given institutional shareholders’ preference for engaging behind closed doors with their investee companies, it was hardly surprising there was no sign of any of the big hitters at 2018’s Sasol annual general meeting (AGM). It was left to two small activist fund managers and a clutch of environmentalists to raise concerns with Sasol’s board.
Things may be a little different in 2019. The AGM has been pushed out by two weeks to accommodate the two-month delay in the annual results release. This means the end-November AGM might be the first opportunity even the large shareholders get to interrogate the board on what has been a truly horrendous year for the petrochemical giant. Hopefully, they will avail themselves of the opportunity; by now they must realise their “behind closed doors” engagement strategy isn’t working.
While cost overruns and delays at the Lake Charles Chemicals Project (LCCP) are the most urgent issues, the grim reality is that Sasol’s problems predate the recent LCCP challenges by years. Vital signs such as gearing, return on equity and return on invested capital, which do not include assets under construction such as LCCP, have been heading in the wrong direction since 2013.
As one of the lone fund managers pointed out at the AGM, the only thing moving steadily upwards is remuneration. Not just for executives, come what may, nonexecutive directors are also big winners, five picking up more than R2m for a part-time job. Mandla Gantsho, who will be chairing his last AGM, benefited from a 19% hike to R5.8m in financial 2018. Being large and complex should justify generous remuneration only if that size and complexity underpin good profit growth. That is not the case. And as for doubling up on the CEOs, Gantsho explained to the shareholders at last year’s AGM that such was the diversity of Sasol’s operating environment it would be impossible to find a single individual with the energy, time, skill, experience and knowledge needed to run the group. Why a second CEO was needed rather than a divisional head was not explained.
In the wake of growing speculation that the double CEO act will be trimmed to one, Sasol would only say it has not received a resignation notice from Stephen Cornell, the “LCCP CEO”.
Eight years after then newly appointed CEO David Constable, a former Fluor executive, led the board in approving a feasibility study for a world-scale ethane cracker, it is apparent the Lake Charles project was a desperate attempt to camouflage the fact that the board had pretty much given up on SA as a source of growth. That has an all too familiar ring to it.
Also chillingly familiar was the announcement that independent external experts had been appointed to review the problems at Lake Charles. That was followed by news, also eerily familiar, that the release of the financial results would be delayed. Then shareholders were told the scope of the independent review had been significantly extended and the results further delayed. A complete and thorough investigation is now being undertaken.
By rights that investigation should trawl back to November 2011 when the board gave the green light for the feasibility study and it should aim to remove all lingering concerns about Fluor’s involvement. That’s just for starters. It must also investigate whether the management problems behind LCCP’s costly overruns are specific to the US or endemic to Sasol. Plans to disclose only “key learnings” from the report should be reconsidered unless the board is contemplating legal action using them.
Shareholders have lost faith in this board and are unlikely to be comforted by access only to what it considers “key learnings”.
There remains the need for a radical review of remuneration policy and decisions, and clawing back previously paid bonuses.
You know things have become frighteningly bad when the prospect of a globally disruptive conflagration in the Middle East looks to be the only thing to rescue Sasol shareholders from huge losses in their investment.
IT HAS BEEN HORRENDOUS, BUT SASOL’S PROBLEMS PREDATE THE LAKE CHARLES ISSUES BY YEARS