The Big Read New Sasol boss Fleetwood Grobler bullish on US fiasco recovery
Grobler confident of higher returns from Lake Charles project
● Asked about the plan for his first 100 days, Sasol’s new CEO Fleetwood Grobler jokes that the first thing is to get a 100-day plan.
But Grobler, who took office on Friday, just days after his predecessors stepped down over cost overruns and delays at Sasol’s $12.9bn (R194.7bn) Lake Charles Chemicals Project, is very clear about the need for the beleaguered group to be realistic and to focus and deliver on just three key items over the next three to six months.
First: “We need to finish and start up the Lake Charles project, complete that, and get the revenues going. It will be 90% operational by the end of this year but I want to get it to 100% as soon as possible.”
Second is to manage Sasol’s balance sheet through “choppy waters” in the next six to 12 months, as debt peaks.
Third is to develop the group’s sustainability options and gas projects.
“Those are my short-term priorities and I think if we can manage that well and deliver on that, then we will have more options to think about what is our strategy going forward and what are our options,” Grobler said in an interview in Cape Town, where he was on a road show to investors after the release earlier in the week of Sasol’s twice-postponed annual results.
“We will be measured on how well the group executive team and myself deliver on these short-term priorities.”
Former joint CEOs Steve Cornell and Bongani Nqwababa stepped down after a review commissioned by Sasol’s board in May found a “culture of fear” at the Lake Charles project had prevented bad news from reaching the board — but found no evidence of wrongdoing on the part of the joint CEOs.
The board said on Monday it wanted to ensure there was a culture of accountability and sought to re-establish trust in Sasol and its leadership.
The executive vice-president who was in charge of the project has been suspended pending disciplinary action; three other executives have left the company, Grobler said.
Sasol’s share price, which had lost 50% this year, jumped 14% on Monday’s announcement, but some analysts have asked whether Grobler — a mechanical engineer who has been at Sasol his entire 35-year career — is too “old Sasol” to undo the damage done by the Lake Charles project, on which the group has spent the equivalent of about half its market value, with the project’s internal rate of return now expected to be well below original projections, at just 6%-6.5%.
Grobler has the advantage that he was asked to lead Lake Charles as executive vicepresident back on April 1 when the full extent of the cost overruns was becoming apparent. Insiders credit him with having been the one to open up about what was going on at the project, which is in the US state of Louisiana and will, once it is fully up and running, lift Sasol’s earnings by 30%.
Grobler is emphatic that Sasol can get more out of Lake Charles than it had anticipated and that the group’s technical teams have the ability to optimise its performance to get it to produce at better than nameplate capacity, with higher returns, over the next three to four years.
The project, which was punted as a step change for Sasol that would internationalise its business and shift its focus squarely to chemicals, has consumed most of its capital spending over the past five years, driving up its debt-to-equity ratio to a steep 56%.
Though analysts ask why Sasol doesn’t do a rights issue to raise capital and repair its balance sheet, Grobler says the balance sheet problem is a “transitory state” which the group needs to manage over the next six to 12 months of peak gearing (before the Lake Charles project is fully operational and generating revenue). Raising equity would be a last resort and “is not our base case”.
There is concern in the market, however, that not enough capital has been going into the “old Sasol” — the South African synfuels and chemicals businesses — which are now “old and tired”, as one fund manager puts it.
Grobler says the group has not underspent on maintenance and sustenance of its
We need to finish and start up the Lake Charles project, and get the revenues going
Fleetwood Grobler
Sasol CEO
assets in SA. What it has done is cut back on growth capital in SA. But, he says, “my vision for growth in SA is through a gas option — so we need to find more gas and get it into SA.” The group will look at a number of options.
Shareholders have been giving the group a particularly hard time about its carbon emissions, which are SA’s second highest after Eskom, and the concern is particularly about how much capital the group will have to invest to reduce its carbon footprint.
Sasol has committed to cut its carbon emissions by 10% by 2030, relative to the 2017 baseline. This hasn’t yet been costed, Grobler says, but the group is developing an emission reduction road map which it will share at its next investor day.
As for culture, Grobler emphasises that a culture of fear is not pervasive at Sasol — but he believes the culture needs to change at Sasol more generally if the group is to stay relevant and attract talent and growth internationally, in a world in which young people want to join Google or Facebook — not fuel and chemicals companies. It needs to instil a culture where bad news can travel to the top fast, says Grobler, and one where young people will feel it is “cool to work at Sasol”.
Like many youngsters who joined Sasol, Grobler went to the University of Pretoria on a Sasol bursary, after a week-long Tukkies winter school lured him to study engineering rather than medicine. He has spent nine of his 35 years at Sasol abroad, most recently as vice-president of Sasol Chemicals based in Hamburg in Germany, but will now be coming home as CEO.