Sa­sol warns of earn­ings de­cline

TRAD­ING UP­DATE: DROP OF LEAST 20% IN FIRST HALF

The Citizen (KZN) - - Business - Adri­aan Kruger

Com­pany as­sures share­hold­ers lat­est fund­ing ac­tiv­i­ties should not af­fect its net debt po­si­tion.

Not only did Sa­sol warn share­hold­ers that they can ex­pect head­line earn­ings per share (Heps) to de­cline by at least 20%, it also warned that the re­sults for the six months to De­cem­ber 2019 may be fur­ther af­fected by ad­just­ments due to the clo­sure of its books at the end of the re­port­ing pe­riod.

“This might re­sult in a change in the es­ti­mated earn­ings. This trad­ing state­ment only deals with the com­par­i­son to the prior pe­riod,” reads the trad­ing up­date.

“A more de­tailed trad­ing state­ment will be pub­lished as soon as more cer­tainty has been at­tained with re­spect to the range of the de­crease in [Heps] and EPS [earn­ings per share].”

In­vestors will im­me­di­ately think of the pos­si­bil­ity of more ad­just­ments re­lat­ing to Sa­sol’s huge Lake Charles Chem­i­cals Project (LCCP) – and, in­deed, Sa­sol does re­fer to it again.

Man­age­ment said it pur­sued steps to en­hance its liq­uid­ity po­si­tion with debt ex­pect­ing to reach a peak dur­ing 2020 with the fi­nal com­ple­tion of the huge project.

Sa­sol has taken a num­ber of ac­tions to ful­fil its com­mit­ment to bal­ance sheet flex­i­bil­ity, ac­cess to liq­uid­ity and main­tain­ing an op­ti­mal fund­ing mix, ac­cord­ing to the lat­est state­ment.

Sa­sol has re­it­er­ated that the LCCP will change the com­pany to­tally. It is set to grow for­eign earn­ings sig­nif­i­cantly, as well as in­crease the con­tri­bu­tion by the chem­i­cal divi­sion to re­duce the ex­po­sure to the mainly SA fuel-man­u­fac­tur­ing busi­nesses.

Man­age­ment also re­peated the mes­sage that gear­ing will peak in 2020 in ac­cor­dance with the orig­i­nal plan­ning of the project, but will be some­what higher than es­ti­mated.

Af­ter fi­nal com­mis­sion­ing to­wards the third quar­ter of 2020, debt lev­els are ex­pected to drop rapidly.

While Sa­sol re­as­sured share­hold­ers in the trad­ing state­ment that the lat­est fund­ing ac­tiv­i­ties should not af­fect its net debt po­si­tion, man­age­ment dis­closed that lenders have agreed to re­lax the un­der­stand­ing that Sa­sol main­tain its net debt to earn­ings be­fore in­ter­est, tax and de­pre­ci­a­tion at three to 3.5 times un­til June 2020.

This seems to in­di­cate that op­er­at­ing profit is ex­pected to take an­other hit dur­ing the six months to De­cem­ber, and also in the fol­low­ing six months.

A look at Sa­sol’s fig­ures over the past few years shows that share­hold­ers are well aware of the de­cline in prof­its since 2015, when work on the Lake Charles project started in all earnest­ness.

Debt in­creased to R127 bil­lion at the end of the 2015 fi­nan­cial year, com­pared with the preLCCP lev­els of R69 bil­lion in 2012.

How­ever, one should bear in mind that Sa­sol also spent cap­i­tal on its other projects around the world, al­though LCCP was des­tined to be­come the big­gest.

When the build­ing of the plant started to gain mo­men­tum in 2016 and 2017, debt in­creased even faster, to R178 bil­lion in June 2016 and all the way to R244 bil­lion by the end of June 2019.

Debt com­pared to to­tal as­sets in­creased from 35% in 2012 to 52% in 2019.

Net fi­nance costs in­creased as well, from a low of R705 mil­lion in 2014 to more than R2 bil­lion in 2018, be­fore eas­ing to R1.55 bil­lion in 2019.

Share­hold­ers are prob­a­bly wait­ing anx­iously for the hal­fyear fig­ures to De­cem­ber.

Sa­sol will an­nounce its re­sults to­wards the end of Fe­bru­ary.

Pic­ture: Bloomberg

WARN­ING. Sa­sol share­hold­ers can ex­pect head­line earn­ings per share to de­cline by at least 20%, the com­pany says .

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