JOHANNESBURG, August 21, 2017 /PRNewswire/ --
- Sales volumes
- Base Chemicals up 3% and Performance Chemicals up 2%
- Liquid fuels sales volumes down 2%
- Strong operational performance across most of the value chain
- Secunda Synfuels Operations volumes up 1% to a new record production level
- Eurasian Operations volumes up 6%, highest since 2015
- Strong cost and cash performance
- Cash fixed costs, in real terms, remained flat for three consecutive years
- Achieved R5,4 billion per annum of sustainable savings from our Business Performance Enhancement Programme, a year earlier than planned
- Delivered cumulative capital conservation and cash savings from low oil Response Plan of R69,4 billion
- Lake Charles Chemicals Project 74% complete, capital expenditure to date of US$7,5 billion and tracking revised estimate
- Core headline earnings up 6% reflects sustainable operations
- Headline earnings per share down 15% to R35,15; earnings per share up 54% to R33,36 in line with market consensus
- Safety Recordable Case Rate (RCR), excluding illnesses, improved to 0,28, regrettably five fatalities occurring during the reporting period
- Delivering on our stakeholder commitments
- Invested R1,6 billion in skills and socio-economic development
- Over R7 billion spent on preferential procurement from black-owned enterprises in South Africa
Sasol today released our annual financial results for the year ended 30 June 2017.
We delivered a strong business performance across most of the value chain, with our Secunda Synfuels Operations (SSO) reporting record volumes and our Eurasian Operations delivering their highest production volumes since 2015. However, continued volatility in the macro-economic environment, particularly the stronger rand and low oil price, has adversely impacted our financial performance.
Earnings attributable to shareholders for the year ended 30 June 2017 increased by 54% to R20,4 billion from R13,2 billion in the prior year. Headline earnings per share (HEPS) decreased by 15% to R35,15 and earnings per share (EPS) increased by 54% to R33,36 compared to the prior year. The prior year EPS was negatively impacted by the R9,9 billion partial impairment of our Canadian shale gas assets.
Core headline earnings increased by 6% (R2,29 per share) compared to the prior year. The Sasol Limited Board considers core headline earnings as an appropriate indicator of the sustainable operating performance of the group, as it adjusts for period close and once-off items as noted below.
Sasol's headline earnings were impacted by the following notable once-off and period close items:
2017 2016 Headline earnings R35,15 R41,40 Translation losses/(gains) (including foreign exchange contracts) arising from a stronger closing rand/US dollar market exchange rate at 30 June 2017 R2,70 (R0,86) Mark-to-market valuation of oil and foreign exchange derivatives using forward curves and other market factors at 30 June 2017 (R1,73) - Provision/(reversal of provision) for tax litigation matters R1,49 (R3,77) Impact of prolonged labour actions at Mining in the first half of the year R1,45 - Core headline earnings R39,06 R36,77
"Notwithstanding the volatile macro-economic environment in which we operate, Sasol delivered a resilient performance. This is testament to the robust foundation we have in place to position Sasol for long-term growth, since we are able to operate profitably and generate healthy free cash flows at oil prices of US$40/bbl. Our sound business fundamentals are further reflected in our record production volumes and earlier-than-anticipated realisation of the full Business Performance Enhancement Programme (BPEP) savings target. Our heightened focus on macro-economic risk mitigations to protect and strengthen our balance sheet and our ability to operate safe, reliable and sustainable operations positions us well for future value-based growth," said Joint President and Chief Executive Officer, Bongani Nqwababa.
Stephen Cornell, Joint President and Chief Executive Officer, said: "Disciplined cost control, focused cash conservation and effective management of financial risks have enabled us to continue delivering shareholder value and achieving a competitive market position. These factors, integral to our DNA, attest to the underlying resilience of our business and our determination to provide shareholders with a world-class investment. To drive future growth, we will sustain this robust foundation through meticulous ongoing continuous improvements, while further enhancing our systems and capital allocation process. As we refine our long-term strategy, our objective is to ensure we have sufficient flexibility to deliver value-based growth under various scenarios. By identifying all opportunities that can contribute to increased total shareholder returns, Sasol is driving an exciting new era of growth for our shareholders and stakeholders."
The highlights of our operational performance can be summarised as follows:
- Secunda Synfuels Operations (SSO) increased production volumes by 1% to a record 7,83 million tons;
- Natref production volumes decreased by 5%. Planned plant shutdowns during the first half of the year contributed to a 3% decrease in production volumes and unplanned downtime during May 2017 led to a 2% reduction in production volumes;
- Our Eurasian Operations increased production volumes by 6% due to stronger product demand;
- ORYX GTL achieved a utilisation rate of 95%, compared to 81% in the prior year, which is higher than market guidance;
- Our Performance Chemicals business reported a 2% increase in sales volumes, which is at the upper end of our market guidance, mainly as a result of stronger demand and improved plant stability;
- Our Base Chemicals sales volumes increased by 3%, slightly below market guidance, due to extended shutdowns at our Chlor Vinyls and Polypropylene plants and a fire at a third party warehouse; and
- Liquid fuels sales volumes in our Energy Business decreased by 2% due to a greater portion of production volumes from SSO being allocated to our higher margin yielding chemical businesses and lower Natref production volumes. Excluding the effect of the Natref downtime and lower allocated volumes from SSO, our liquid fuels sales volumes increased by 1%.
The decrease in the effective corporate tax rate from 36,6% to 28,3% was mainly as a result of the R9,9 billion partial impairment of our Canadian shale gas assets in the prior year. The adjusted effective tax rate, excluding equity accounted investments, remeasurements and once-off items, is 26,5% compared to 28,2% in the prior year.
We have seen some recovery in global oil and product prices as average Brent crude oil prices were 15% higher compared to the prior year (average dated Brent was US$49,77/bbl for the year ended 30 June 2017 compared with US$43,37/bbl in the prior year). Despite softness in commodity chemical prices experienced at the start of the financial year, we have seen a steady increase in demand and robust margins in certain key markets. The average margin for our speciality chemicals business remains resilient, despite a margin squeeze in our ammonia business as a result of oversupply in global markets.
Excluding the effect of our hedging programme, the average rand/US dollar market exchange rate strengthened by 6% from R14,52 in 2016 to R13,61, and the closing rand/US dollar market exchange rate strengthened by 11% from R14,71 to R13,06. This resulted in translation losses of R2,3 billion on the valuation of the balance sheet compared to translation gains of R1,1 billion recognised in the prior year (including foreign exchange contracts).
We continued to deliver a strong cost performance and managed to contain our cash fixed costs to below inflation in nominal terms, despite the additional once-off costs incurred due to the Mining strike.
Through our continued focus on cost control and the commitment of our people, we achieved our Business Performance Enhancement Programme (BPEP) sustainable savings exit run-rate target of R5,4 billion per annum in 2017, a year earlier than previous market guidance. We have now closed out our BPEP programme, having achieved the targeted sustainable savings. Going forward we are committed to further drive continuous improvement to identify opportunities to sustainably drive down costs and deliver improved returns to our shareholders and stakeholders.
Our comprehensive Response Plan (RP), to counter the effects of a low oil price by focusing on capital conservation and cash savings, has continued to yield positive results in line with our 2017 targets, despite margin contraction and the negative impact of a much stronger exchange rate. The RP realised capital conservation and cash savings of R32,3 billion in 2017, bringing our total cumulative cash conservation to R69,4 billion. The RP's objective is to place the company in the best possible position to operate profitably in a US$40/bbl oil price environment and to proactively manage the balance sheet and our liquidity. We have increased our RP sustainable annual cash cost savings target from R2,5 billion to at least R3,0 billion by 2019, in addition to the R5,4 billion sustainable savings from our BPEP. This takes our cumulative sustainable cost savings to R8,4 billion.
Actual capital expenditure, including accruals, amounted to R60,3 billion. This includes R36,8 billion (US$2,7 billion) relating to the LCCP. Our actual capital expenditure for the full year is below previous market guidance of R66 billion, largely due to the stronger exchange rate, re-phasing of the LCCP capital cash flow and active management of the capital portfolio.
During the current financial year, Sasol entered into a number of hedges to mitigate specific financial risks and provide protection against unforeseen movements in oil prices, interest rates, currency movements, and commodity and final product prices. Approximately 50% of the crude oil exposure was hedged with crude oil put options for 2017 and 2018 at a net price of ~US$48,15/bbl. A total net loss of R237 million (US$17 million) was recognised during the period. To manage the exposure to the US dollar, approximately 70% of the rand/US dollar exposure has been hedged with zero-cost collar instruments at a floor of ~R13,46 for 2018.
A net gain of R1 608 million (US$118 million) was recognised during the period. Should appropriate hedges become available in the market at an acceptable cost, we will enter into additional hedges as mitigation against these financial risks.
Our net cash position decreased by 44%, from R52,2 billion in June 2016 to R29,3 billion as at 30 June 2017 mainly due to the funding of the LCCP and the effect of a stronger closing rand/US dollar exchange rate. Loans raised during the year amounted to R13,3 billion, mainly for the funding of our growth projects. We have sufficient liquidity in place to fund the LCCP and our business operations.
Cash generated by operating activities decreased by 19% to R44,1 billion compared with R54,7 billion in the prior year. This is largely attributable to purchases of crude oil options of R1,3 billion (US$103 million), increases in working capital as well as a stronger rand/US dollar exchange rate. Notwithstanding reduced cash flows, our balance sheet has the capacity to lever up, as we continue to execute our growth plans and return value to our shareholders. Accordingly, in support of our funding strategy, gearing increased to 27%, which is better than our previous market guidance of 30% to 35%. This provides us with additional headroom compared to our internal targets.
To manage the impact of price volatility and the lower oil price environment, the Board concluded that our internal gearing ceiling will remain at 44% until the end of the 2018 financial year. The net debt-to-EBITDA ratio is 1,13 times compared to 0,56 times in the prior year and is expected to remain below our target of 2,0 times. We actively manage our capital structure and funding plan to ensure that we maintain an optimum solvency and liquidity profile.
Our dividend policy is to pay dividends within a dividend cover range based on HEPS. Taking into account the current volatile macro-economic environment, capital investment plans, our cash conservation initiative, the current strength of our balance sheet, and the dividend cover range, the Board has declared a gross final dividend of R7,80 per share. The dividend cover was 2,8 times at 30 June 2017 (30 June 2016: 2,8 times).
Growing our footprint in North America
Overall construction on the Lake Charles Chemicals Project (LCCP) continues on all fronts, with most engineering and procurement activities nearing completion. At 30 June 2017, capital expenditure amounted to US$7,5 billion, and the overall project completion was 74%. The total forecasted capital cost for the project remains within the approved US$11 billion budget and project progress is tracking the approved schedule.
This budget includes a contingency which, measured against industry norms for this stage of project completion, is considered sufficient to effectively complete the project to beneficial operation (BO) within the approved budget. Various savings opportunities have been identified and are continuously being implemented to mitigate project risks. Although unplanned event-driven risks may still impact the execution and cost of the project, we are confident that the remaining construction, procurement, execution and business readiness risks can be managed within the budget.
We continue to monitor the economics of the project against the backdrop of a challenging macro-economic environment. We rely extensively on the views of independent market consultants in formulating our views on our long-term assumptions. Their views differ significantly, from period to period, which again is indicative of the volatility in the market.
For these reasons, the internal rate of return (IRR) for the LCCP, based on these different sets of price assumptions, varies between a range of returns which is both higher and lower than our weighted average cost of capital (WACC). At spot market prices, using the last quarter of 2017 as a reference, the IRR is between 8% to 8,5%.
We are of the view that limited structural changes have occurred to market fundamentals since February 2017, when we last published the expected long-term IRR of the project, hence, based on our internal assessment, we are of the view that the IRR is in a range of 7% to 8% (Sasol WACC at 8% in US$ terms) based on conservative ethane prices.
The cracker, however, remains cost competitive and is at the lower end of the cost curve for ethylene producers. We will continue to focus on factors that we can control, which are progressing the cost and schedule of the project according to plan. The updated economics, earnings profile, capital spend and sensitivities are detailed in the Analyst Book available on our website, http://www.sasol.com.
Construction of our 50% joint venture high-density polyethylene plant with Ineos Olefins and Polymers USA is essentially complete and we are in the commissioning phase with start-up on track for quarter four in calendar year 2017.
The plant will be the largest bi-modal high density polyethylene (HDPE) manufacturing facility in the US (470kt per annum) and is expected to produce some of the most cost competitive performance resins based on InnoveneTM S technology. The market conditions continue to be favourable with low feedstock cost and strong polyethylene market demand.
Focusing on our asset base in Southern Africa
Our strategic R14 billion mine replacement programme, which will ensure uninterrupted coal supply to SSO in order to support Sasol's strategy to operate its Southern African facilities until 2050, is nearing completion. Phase 2 of the Impumelelo Colliery project commenced during the first half of the 2016 calendar year and is on track to be completed within budget of R0,9 billion, late in the 2019 calendar year.
The development of the Production Sharing Agreement (PSA) licence area in Mozambique remains on budget and schedule. We have successfully drilled and tested four oil wells and two gas wells, and captured 3D seismic over parts of the PSA. Gas reserves look promising and in line with expectations.
We are now anticipating oil production between the mid to lower end of the range anticipated in the Field Development Plan. The surface facilities design and oil field development plan are being optimised in line with the lower volumes, and it is anticipated that substantial capital savings will be realised.
Business performance outlook* - strong production performance and cost reductions to continue
The current economic climate continues to remain highly volatile and uncertain. While oil price and foreign exchange movements are outside our control and may impact our results, our focus remains firmly on managing factors within our control, including volume growth, security of feedstock supply, cost optimisation, effective capital allocation, focused financial risk management and maintaining an investment grade credit rating.
We expect an overall strong operational performance for 2018, with:
- Base Chemicals US dollar product prices to recover during the year and our South African Base Chemicals sales volumes to be between 3% to 5% higher than the prior year; in addition our US high-density polyethylene plant will contribute an additional 80kt to 110kt during the second half of the year.
- Normalised operating profit is estimated to be between R3 billion to R5 billion;
- Performance Chemicals sales volumes, excluding merchant ethylene which will now be accounted for in Base Chemicals, to be between 2% to 3% higher, with average margins for the business remaining resilient;
- Liquid fuels sales volumes to be marginally below 60 million barrels due to planned shutdowns at Natref;
- Gas production volumes from the Petroleum Production Agreement to be between 114 bscf and 118 bscf;
- Average utilisation rate at ORYX GTL in Qatar to exceed 90%;
- Normalised cash fixed costs to remain in line with SA PPI;
- Cumulative capital conservation and cash flow contribution from our RP to be close to the upper end of
- our targeted range of R65 billion to R75 billion by the end of FY18;
- Capital expenditure, including capital accruals, of R59 billion for 2018 and R37 billion for 2019 as we progress with the execution of our growth plan and strategy. Capital estimates may change as a result of exchange rate volatility and other factors;
- Our balance sheet gearing up to a level of between 35% and 44%;
- Rand/US dollar exchange rate to range between R13,00 and R14,50; and
- Average Brent crude oil prices to remain between US$45/bbl and US$55/bbl.
* The financial information contained in this business performance outlook is the responsibility of the directors and in accordance with standard practice, it is noted that this information has not been audited and reported on by the company's auditors. Comprehensive additional information is available on our website: http://www.sasol.com
Forward looking statements: Sasol may, in this document, make certain statements that are not historical facts and relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our future prospects, developments and business strategies. Examples of such forward-looking statements include, but are not limited to, statements regarding exchange rate fluctuations, volume growth, increases in market share, total shareholder return, executing our growth projects, (including LCCP), oil and gas reserves and cost reductions, including in connection with our BPEP, RP and our business performance outlook. Words such as "believe", "anticipate", "expect", "intend", "seek", "will", "plan", "could", "may", "endeavour", "target", "forecast" and "project" and similar expressions are intended to identify such forward-looking statements, but are not the exclusive means of identifying such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and there are risks that the predictions, forecasts, projections and other forward-looking statements will not be achieved. If one or more of these risks materialise, or should underlying assumptions prove incorrect, our actual results may differ materially from those anticipated. You should understand that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors are discussed more fully in our most recent annual report on Form 20-F filed on 27 September 2016 and in other filings with the United States Securities and Exchange Commission. The list of factors discussed therein is not exhaustive; when relying on forward-looking statements to make investment decisions, you should carefully consider both these factors and other uncertainties and events. Forward-looking statements apply only as of the date on which they are made, and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise.
Please note: A billion is defined as one thousand million. All references to years refer to the financial year 30 June.
Any reference to a calendar year is prefaced by the word "calendar".
Sasol is an international integrated chemicals and energy company. Through our talented people, we use selected technologies to safely and sustainably source, produce and market chemical and energy products competitively to create superior value for our customers, shareholders and other stakeholders.
Senior Vice President: Investor Relations
Head of Group Media Relations
Direct telephone: +27(0)10-344-6509; Mobile: +27(0)71-600-9605;
Senior Specialist: Media Relations
Direct telephone: +27(0)11-344-9256, Mobile: +27(0)83-773-9457
SOURCE Sasol Limited