Squeezed by the oil price, Sa­sol cuts jobs, div­i­dends


Finweek English Edition - - INSIDE - BY BUHLE ND­WENI

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.

David Constable

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