Sasol surges as heads roll over US project
Joint CEOs replaced by executive vice-president for chemicals amid Lake Charles overruns
Sasol’s shares surged the most in more than a decade after heads rolled at the synthetic fuels and chemical group, which also promised to root out a “culture of fear” that had caused billions in cost overruns at its Lake Charles Chemicals Project in the US.
Ahead of Sasol’s results presentation on Monday, departing board chair Mandla Gantsho said an independent review into the troubled US project found that the problems mainly related to a group of individuals in the management team who fostered a “culture of fear”.
That prevented information from flowing up the management chain, he said.
Various governance shortcomings within the project further contributed to the issues, Gantsho said.
Though the review found no specific wrongdoing by the Sasol corporate leadership, Sasol joint CEOs and presidents Stephen Cornell and Bongani Nqwababa have agreed to step down in recognition that some of the problems occurred under their watch. Details of the separation package are not yet available but in 2018 Nqwababa received a base salary of R10m and Cornell received about R13.7m.
CHEMICALS GIANT
The two will be replaced by executive vice-president for chemicals Fleetwood Grobler, who will take up the role with effect from November 1.
The Lake Charles project was meant to transform Sasol from a largely SA-based synfuels company into a global chemicals giant, but investors have grown increasingly impatient as the project faced delays and the costs ballooned from $8.9bn (about R129bn) to $12.9bn (about R188bn) since 2014.
According to Gantsho, those at the top of the Lake Charles project management team have now been held accountable.
Without naming individuals, Sasol said three senior vicepresidents with roles in the project had exited the company, while disciplinary action had
been initiated against the executive vice-president previously in charge of the project.
Wayne McCurrie, of FNB Wealth and Investments, said the market was pleased to see there were consequences for the debacle.
“It’s fantastic that a company has taken decisive action against management for the amount of money that has been wasted, for bad project management and for, involuntarily, giving incorrect information to the market.”
Gantsho said the independent review report would not be made public on the advice of Sasol’s legal counsel.
Sasol’s share price closed 11.78% higher at R298.74, the biggest one-day gain since 2008, after news of the resignations as well as the release of annual results for the year to June 30 2019, which have been delayed twice.
Earnings before interest, taxes, depreciation and amortisation fell 45% to
R9.7bn due to lower chemical prices and Lake Charles costs, but headline earnings increased 13% to R18.9bn.
Sasol said it was confident the cost of the project would stay within the projected $12.6bn$12.9bn range.
The deadlines for three remaining units have, however, been pushed out and are now expected to come online in the second half of 2020 as opposed to the first half.
Sasol opted not to pay an interim dividend to end-June, having paid R12.90 previously. It further warned it may also not pay a dividend in its full year as it seeks to strengthen its balance sheet.
Abdul Davids, head of research at Kagiso Asset Management, said the exit of the two CEOs was the right decision given that there were pervasive control and governance failures at Lake Charles. “The buck stops with them,” he said. “Steve Cornell was brought in for this very project, so his position became particularly untenable.”
Sasol stressed that the two CEOs were jointly and severally liable, and thus “if one had to go, both had to go”, Davids said.
Zaid Paruk, portfolio manager at Aeon Investment Management, said that Sasol’s admission regarding a lack of past management oversight was encouraging.
“Investors will be eyeing Sasol’s attempt at managing costs in the latest Lake Charles projections, and eyes will now be on the ramp-up of the ethane cracker [the heart of the project],” he said.
BONGANI NQWABABA AND STEPHEN CORNELL WILL BE REPLACED BY THE EXECUTIVE VICEPRESIDENT FOR CHEMICALS