South African petrochemicals giant Sasol CFO Paul Victor announced last month that, despite the anticipated oil and currency price volatility, the company expected its strong operating performance to continue next year.
Speaking at Sasol’s annual results presentation on September 12, Victor pointed out that the company would maintain momentum despite macroeconomic factors and commented that the outlook for 2017 remained reasonably positive. “South African liquid fuels sales volumes [will reach] about 61-million barrels, with [Qatari joint venture (JV)] Oryx’s gas-to-liquid’s (GTL) usage rate averaging about 90%, [and] base chemicals’ and performance chemicals’ sales volumes and margins are expected to be higher than the previous year.”
Sasol expects the cost and cash savings contributions from its low-oil-price response plan to deliver towards the upper end of the R15- to R20-billion range. Victor added: “Sustainable cost savings of our targeted R5.4-billion by 2018 will continue to drive normalised cash fixed costs to remain in line with inflation.” Further, the company expects its balance sheet to reach gearing levels of between 25% and 35%, and a net debt to earnings before interest, taxes, depreciation and amortisation ratio of 0.8 to 1.5.
During his presentation, Victor noted that Sasol had also secured sufficient facilities and funding to provide the necessary liquidity to continue executing its growth strategy, adding that the company would strive to maintain its current credit ratings, which are at investment grade levels. “We remain confident that the interventions already in place will ensure that we navigate a volatile and constrained economic environment safely, while continuing to deliver value to our shareholders aligned with our current dividend policy.”
Sasol reported a 17% drop in headline earnings per share to R41.40 for the 2016 financial year. This was despite the 25% weakening in the rand oil price during the period. The result was buoyed by record production volumes at the Secunda Synfuels Operations, as well as savings achieved through its Business Performance Enhancement Pro-gramme and its aforementioned response plan.
Victor believes the business delivered a fair set of results, relative to the current economic environment. Its energy divisions, Secunda Synfuels and National Petroleum Refiners of South Africa, better known as Natref, increased liquid fuels production by 1%. “The Southern Africa Energy portfolio benefited from a weaker rand:US dollar exchange rate. However, the impact of the 41% lower oil price negated these gains. Operating margins held firm at 22% as a result of record volumes and higher liquid fuel sales margins by consciously targeting higher-yielding marketing channels.”
Gas sales were also 1% higher, mainly as a result of higher methane-rich gas sales to commercial customers. The Oryx GTL venture contributed R462-million to the energy division. The plant achieved an average utilisation rate of 81%, owing to the guided planned shutdown. “The volume decrease, coupled with the significant drop in oil prices, resulted in our share of profit from the JV decreasing by 75%, compared with the prior year.”
Sasol’s Nigerian GTL plant is still in its ramp-up phase towards design capacity and stable operation.
Operating profit of R24.2-billion decreased by 48%, compared with the prior year, in light of the challenging and highly volatile global markets. The company noted that average Brent crude oil prices moved dramatically lower by 41%, compared with the prior year – $43/bl for the year ended June 30, 2016 compared with $73/bl in the prior year. Although commodity chemical prices were lower because of the depressed oil prices, there was still strong demand and robust margins in certain key markets.
The average basket of commodity chemical prices decreased by 22%, compared with a 41% decrease in oil. However, the average margin for Sasol’s speciality chemicals business remained resilient, compared with the prior year. The effect of lower oil and commodity chemical prices was partly offset by a 27% weaker average rand:US dollar exchange rate.
Victor concluded that the 2016 results and 2017 projections demonstrated that the company was well positioned to continue delivering a strong operational performance. Further he commented that Sasol would continue to focus on the factors within its control as it geared up the balance sheet and executed its growth plans in pursuit of delivering maximum sustainable value to shareholders.