Squeezed by the oil price, Sasol cuts jobs, dividends
SASOL’S RESTRUCTURING PROGRAMME, DUBBED PROJECT PHOENIX, AIMS TO REALISE ANNUAL SAVINGS OF R4BN
As persisting low oil prices keep digging into Sasol’s pockets, the petrochemicals company is increasing its efforts to cut costs and preserve cash. As part of the group’s cash conservation plans, Sasol changed its dividend policy and delayed a planned $14bn (R172bn) investment in a gas-toliquids (GTL) plant in Louisiana, US. It is going ahead with its $8.9bn (R109bn) ethane cracker at the same Lake Charles complex.
Sasol CEO David Constable said external experts expect low oil prices to persist until mid-2016, and that oil is expected to recover towards $80 (R981) a barrel during the 2017 financial year, which ends in June. The oil price was trading at around $58 (R711) per barrel at the time of writing.
Forecasting oi l prices r emains challenging, Constable said. “[ This is] as the market is still in the process of determining the new short-term equilibrium price. Equally difficult is determining when supply and demand will become more balanced.”
As part of its efforts to conserve cash, Sasol cut its interim dividend to R7 a share, from R8 in the corresponding period last year, despite growing earnings per share (EPS) by 53% to R32.04.
In February, Sasol announced that it was dropping its progressive dividend policy, implemented in 2010, which was based on sustainable long-term earnings. The intention was that dividends would be maintained and grown over time. The group has now reverted back to its former policy of having dividends covered by earnings, which means there is no commitment to maintain dividend payouts. No specific cover range has been disclosed.
The boost in EPS was mainly driven by a 66% increase in earnings from its mining operations, and a 51% increase in the contribution from its chemicals business. The weaker rand also helped offset some of the impact of the lower oil price.
The average rand/dollar exchange rate was 9% lower over the period compared to the same six months in 2013, while the average price of Brent crude was down 19% year-on-year. Every R0.10 change in the annual average rand/dollar exchange rate affects Sasol’s profit from global operations by about R605m, while a $1 change in the Brent crude oil price has an impact of about R800m, Sasol said. The group reported profit from operations of R30bn, up 39%, in the six months to end December.
As part of its cost-cutting plans, Sasol has realised sustainable savings of about R1bn in the year to date, while restructuring costs totalled about R1.5bn. It aims to conserve R30bn to R50bn in cash until the end of June 2017.
Sasol’s restructuring programme, dubbed Project Phoenix, aims to realise annual savings of R4bn (to be increased to R4.3bn by the 2016 financial year).
By the end of December, the group sig ned off on 1 500 employment separations either through voluntary retrenchment or early retirement, believed to affect those in the 55 to 60 age bracket. An additional 200 senior executives will also be made redundant, and 500 to 1 000 vacancies across the group have been frozen, the company said.
“There’s another 190 unplaced individuals in the company, which we’re working on placing. The 200 senior management personnel are part of the lower oil price response plan which will again be transitioned in the company over the next several months,” Constable explained.