Sasol up to the task of handling volatility, says CEO
Sasol, SA’s biggest producer of liquid fuel from coal, is working on a package of measures to beef up its cash flow generation after its half-year profits plunged 34% due to weaker oil and chemical prices.
Sasol, which operates mainly energy and chemicals businesses, is one of the largest corporate taxpayers in SA, where it is responsible for more than 20,000 permanent employees. In the past financial year alone it was responsible for R13.9bn in direct taxes.
However, its sprawling portfolio is susceptible to commodity markets, which are notoriously volatile and rest mainly on global growth perceptions.
The energy markets fell sharply in the six months to end December from the same period a year earlier, knocking Sasol’s profits as a consequence. Sasol was also a victim of unreliable electricity and an inefficient rail network, which affected its ability to move goods to markets.
Outgoing CEO Fleetwood Grobler said on Monday that the group was up to the task of managing the fallout from the downturn in commodity markets.
PRODUCTIVITY
“We are taking measures to position the chemicals business for improved performance when the cycle turns. Across the organisation, strict cost and capital measures have been introduced to improve cash generation,” Grobler said at the presentation of the group’s results. He did not give details.
“We also continue to embed operational improvements with a relentless focus on safety, improving productivity rates at mining, which will lead to better performance of the SA value chain. This takes place against the backdrop of volatility and an uncertain regulatory environment in SA and other business challenges such as power supply and infrastructure constraints.”
His comments came after its profits fell by a third, reflecting a drop in chemical and oil prices as demand in key export markets such as China sagged.
Its headline earnings per share dropped 34% to R20.37 year on year after the average chemicals sales basket price
plunged 24% while Brent crude fell 10% on average, partially offset by a weaker rand.
Energy prices are sensitive to the global growth outlook, which remains highly uncertain.
The other headwinds that Sasol faced during the review period included inventory destocking by customers in Europe, and the electricity and logistics crises in SA.
Sasol wrote down the value of the Secunda liquid fuels refinery cash-generating unit to the tune of R3.9bn due to the deteriorating macro outlook, as well as Chemicals Africa, ChlorAlkali & PVC and Polyethylene cash-generating units to the value of R1.2bn.
Its interim dividend plummeted 71% from the same period a year ago to R2 a share.
Sasol is in a tight spot as it needs to decarbonise its operations, sacrificing profits. It is the largest emitter of greenhouse gases in SA after Eskom and is under pressure from investors and environmentalists.
Its decarbonisation plans include switching from coal to gas as a feedstock for its Secunda operations, but uncertainty remains about whether the group will be able to secure sufficient gas supplies to meet its 2030 and 2050 emissions reduction targets.
Its share price settled 2% lower to R143.05 on the JSE on Monday, having lost 46% over a one-year view alone, wiping off billions of rand of shareholder value, according to Infront data.
Camissa Asset Management head of research Abdul Davids said the group’s prospects were linked to the outlook for oil and chemical markets.
“Oil prices above $80 a barrel coupled with the current level of the rand exchange rate remain positive for Sasol, and its fuels division has seen a very healthy jump in profits over the first half of their 2024 financial year,” he said.
Nitrogen Fund Managers director Rowan Williams said management would be forced to make some difficult decisions, including the level of dividends paid, commitment to reducing carbon emissions and sourcing alternative gas supplies.
“Management has not yet displayed the commitment to dealing with these tough choices and will have to reassure investors that they understand, comprehend and have a plan for each of these key decisions before the market will regain confidence in the investment case,” Williams said.
FLEETWOOD GROBLER POINTS TO EFFORTS TO BEEF UP CASH GENERATION AFTER PROFIT PLUNGES BY MORE THAN A THIRD