Several unplanned electricity supply interruptions and two internal outages at its Secunda synfuels operations, resulted in lower production volumes for petrochemicals group Sasol for the financial year ended June 30.
In a trading update published on Friday, the company said its earnings before interest, taxes, depreciation and amortisation (Ebitda) are expected to increase by between 6% and 16%; however, core headline earnings per share (HEPS) are expected to decrease by between 1% and 11%, compared with the 2017 financial year when core HEPS were R38.47 apiece.
The difference between core HEPS and Ebitda in the current year is largely owing to depreciation of about R16-billion and employee share-based payment expenses of R15-billion owing to the marked improvement of the Sasol share piece at the end of the financial year.
The share-based payment relating to Sasol’s Khanyisa broad-based black economic empowerment transaction of R3-billion is excluded from core HEPS and Ebitda, as it is considered to be a one-off and noncash item.
HEPS for the financial year are expected to decrease by between 16% and 26%, or between R5.64 and R9.16, compared with HEPS of R35.15 reported for the prior year.
Earnings per share (EPS) are expected to decrease by between 52% and 62%, or between R17.46 to R20.80, from the prior year’s R33.36.
From a macroeconomic perspective, the stronger average rand/US dollar exchange rate and the negative impact of remeasurement items, largely driven by the stronger longer-term rand exchange rate, resulted in a much lower operating profit and EPS for the financial year.
However, the closing exchange rate weakened by 5%, which negatively impacted on gearing and the valuation of Sasol’s derivatives and foreign debtors and loans. The company’s hedging programme for the 2018 and 2019 financial years is complete and positions Sasol well to steer through these periods of volatility.
The average Brent crude oil price moved 28% higher compared with the prior year, and, since December 2017, spot prices have moved closer to the $75/bl mark, which positively impacted on Sasol’s results.
The rand oil price increased by about 20% to R818/bl, compared with 2017, and has subsequently increased by about 15% to 25% since the end of June.
The spot oil price is now ranging at between R950/bl and R1 050/bl.
Sasol experienced some challenges with regard to its operational and cost performance during the year, largely owing to planned and unplanned production interruptions at the Natref refinery, in Sasolburg, and a safety related stoppage at one of its mining operations in the first half of the year, which adversely impacted on sales and cost across the value chain.
“Despite two additional safety related stoppages at mining operations and unplanned electricity outages in Secunda, we managed to claw back and deliver a stronger operational performance in the second half of the year through focused interventions and management actions.
“Our Eurasian operations increased production volumes by 3% owing to stronger product demand and increased plant availability. In the last quarter, we have seen considerably higher yields and production volumes across the value chain which are more closely aligned to our internal targets.
“We are well positioned to continue with this improved operational performance into the 2019 financial year. Sales volumes increased by 1% for our performance chemicals business spurred by robust market demand despite electricity supply interruptions,” reported Sasol.
Base chemicals reported a 1% decrease in sales volumes mainly as a result of production interruptions at the Secunda synfuels operation and an initial stock build for Sasol’s high-density polyethylene joint venture in the US.
Excluding the impact of electricity supply interruptions, sales volumes increased by 1%.
Liquid fuels sales volumes were down 2% owing to lower volumes from the Secunda synfuels operations and Natref and a challenging South African retail liquid fuels market.