Sasol sets aside R4.2bn in cash as part of cost-saving plan as oil price drags
Hinged to cost-saving strategy
SASOL, the biggest producer of liquid fuels from coal, plans to conserve as much as $4.2 billion (R50.5bn) in cash in addition to its cost-saving strategy as an oil drop drags down prices of its products.
The company had set a “cash-conservation target range” of R30bn to R50bn over 30 months, using December 31 as a baseline, supplementing another programme that entailed cost savings of at least R4.3bn annually from July 2017, it said yesterday.
“In the near term, we expect tough trading conditions to prevail for the remainder of the calendar year 2015,” the group financial controller Paul Victor said.
The company expects average Brent crude oil prices to be at least 30 percent lower during the second half of the financial year compared with the first and sees the rand/dollar rate being affected by quantitative easing in Europe.
Construction
Sasol, like other fuel producers such as Qatar Petroleum and Royal Dutch Shell, is conserving costs after oil fell more than 50 percent over the last six months.
The company, whose revenue is linked to the dollar price of oil, delayed plans to build a US gas-to-liquids plant, the nation’s first, that would have cost as much as $14bn, it said on January 28.
It is going ahead with construction of an $8.1bn plant in the US that will convert natural gas into plastics and other products in the chemical industry’s largest bet on shale gas.
The cash conservation measures would include as much as R22bn of “capital portfolio phasing and reductions”, R12bn of capital structuring, working-capital improvements of as much as R9bn and further cash-cost reductions ranging from R4bn to R7bn, it said.
Sasol cut capital-expenditure plans for 2015 to R45bn from R50bn announced on September 8, and maintained 2016 spending plans at R65bn and planned to spend R60bn in 2017, it said.
The producer raised the amount it plans to save from its performance- enhancement programme to at least R4.3bn by the end of June next year.
By December 31, almost 1 500 jobs were cut through voluntary separations and early retirements, it said.
Sasol said first-half profit rose 6.2 percent after a decline in the rand-dollar exchange rate countered the drop in crude oil.
Earnings excluding onetime items advanced to R19.5bn, or R32 a share in the six months through December, from R18.4bn or R30.19 a share a year earlier, it said.
Sasol declared an interim dividend of R7 a share, from R8 a year earlier, after changing its policy last month.
Negative impact
Sasol, whose expenses are mostly in rand, benefits from the currency’s decline against the dollar.
The rand traded at an average of R10.9955 to the dollar in the first half, 8.4 percent weaker than the mean a year earlier.
Sales volumes of liquid fuels from Sasol’s energy business in southern Africa rose 3 percent.
“The increased cost of production resulting from higher-than-inflationary increases in feedstock and utilities, as well as the reduction in the basic fuel price on the back of lower international crude oil prices, resulted in an 18 percent negative impact on our gross margin,” it said.
It sees liquid-fuels product volumes in southern Africa of about 59 million barrels for the year through June.
Shares rose 1 percent to close at R410.06 yesterday.