Sa­sol ex­pects earn­ings to dive

Fall could be as much as 44%

The Star Early Edition - - BUSINESS REPORT - Siseko Njobeni

CHEM­I­CALS and energy group Sa­sol’s share price fell 3.02 per­cent to R409.26on the JSE yes­ter­day af­ter the com­pany said it ex­pected its head­line earn­ings per share for the six months to De­cem­ber 31 to fall by as much as 44 per­cent.

Sa­sol has at­trib­uted the ex­pected fall in head­line earn­ings to cur­rency losses and a strike at its Se­cunda min­ing op­er­a­tions. As­so­ci­a­tion of Minework­ers and Con­struc­tion Union mem­bers at the Se­cunda op­er­a­tion went on strike in Au­gust last year af­ter ne­go­ti­a­tions be­tween the union and com­pany failed.

Sa­sol yes­ter­day said the strike re­sulted in a 16 per­cent de­crease in min­ing pro­duc­tion vol­umes and sig­nif­i­cantly higher once-off costs to en­sure a con­tin­u­ous sup­ply of coal to the Se­cunda Syn­fu­els Op­er­a­tions. “The ad­di­tional net cost as­so­ci­ated with the labour action is es­ti­mated at ap­prox­i­mately R1 bil­lion or R1.06 per share,” Sa­sol said.

Sa­sol added that while the aver­age rand/US dol­lar ex­change rate weak­ened by 3 per­cent to R13.99 dur­ing the six months, the clos­ing rand/ dol­lar ex­change rate, how­ever, strength­ened to R13.74 at De­cem­ber 31 last year, re­sult­ing in so-called trans­la­tion losses of about R1.3 bil­lion on the val­u­a­tion of the bal­ance sheet, com­pared to trans­la­tion gains of R2.6bn in the pre­vi­ous com­pa­ra­ble pe­riod.

The ex­pected fall in head­line earn­ings per share is a con­tin­u­a­tion of a re­cent trend for Sa­sol. In the six months ended De­cem­ber 31, 2015, Sa­sol’s head­line earn­ings per share de­creased by 24 per­cent to R24.28, while earn­ings per share fell by 63 per­cent to R11.97, com­pared to De­cem­ber 31, 2014.

In the year ended June 30 last year, the head­line earn­ings per share de­creased by 17 per­cent per share to R41.40.

Sa­sol has been on the re­ceiv­ing end of a dra­matic drop in global oil and com­mod­ity prices. In the year ended June 30 last year, the Brent crude oil price fell by an aver­age 41 per­cent lower, while the rand/ dol­lar ex­change rate was 27 per­cent weaker.

In his re­view last year, Sa­sol chief fi­nan­cial of­fi­cer Paul Vic­tor said that for ev­ery $1 per bar­rel in­crease in the an­nual aver­age crude oil price, op­er­at­ing profit was ex­pected to in­crease by ap­prox­i­mately R820m in the 2017 fi­nan­cial year.

In the 2016 fi­nan­cial year, the crude oil price av­er­aged $43.37 per bar­rel.

“For fore­cast­ing pur­poses, we es­ti­mate that a 10c change in the an­nual aver­age rand/ dol­lar ex­change rate will im­pact our op­er­at­ing profit by ap­prox­i­mately R650m in 2017,” said Vic­tor.

In a note ear­lier this month, eco­nomic con­sul­tancy Econometrix said there was a grow­ing view that the rand would not weaken much dur­ing the course of 2017 “and might ac­tu­ally strengthen.”

Ac­cord­ing to the com­pany’s state­ment yes­ter­day, the drop in head­line earn­ings in 2016 has spilt into the 2017 fi­nan­cial year. It said head­line earn­ings per share for the six months to De­cem­ber 31 were ex­pected to be down by be­tween 34 per­cent and 44 per­cent – or be­tween about R8.26 and R10.68 a share.

Earn­ings per share for the same pe­riod were set to rise by be­tween 12 and 22 per­cent.

In the face of the drop in com­modi­ties and global prices, Sa­sol has said its fo­cus was on fac­tors within its con­trol. These in­cluded vol­ume growth, mar­gin im­prove­ment and cost op­ti­mi­sa­tion.

It said Se­cunda Syn­fu­els’ pro­duc­tion vol­umes rose by 1 per­cent, while Eurasian op­er­a­tions in­creased pro­duc­tion vol­umes by 8 per­cent, mainly due to stronger prod­uct de­mand.

It said pro­duc­tion at the Na­tref re­fin­ery at Sa­sol­burg was down 7 per­cent, mainly due to planned shut­downs. The Base Chem­i­cals busi­ness in­creased sales by 11 per­cent, Sa­sol said.

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