Sasol expects earnings to dive

Fall could be as much as 44%

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.