Sasol delivered a satisfactory set of business results for the first half of the year, driven by oil prices averaging US $62,62/bbl. and a solid production performance. During the second half of the year our earnings was severely impacted by the sudden collapse in oil prices and the economic consequences of the COVID-19 pandemic.
The combined effects of unprecedented low oil prices, destruction of demand for products and impairments of R 111,6 billion resulted in a loss of R 91,3 billion for the year compared to earnings of R 6,1 billion in the prior year.
Within a volatile and uncertain macroeconomic environment, our foundation businesses still delivered resilient results with a strong volume, cash fixed cost and working capital performance.
The 18% decrease in the rand per barrel price of Brent crude oil coupled with much softer global chemical and refining margins negatively impacted our realised gross margins especially during the second half of the year.
The LCCP delivered an improved earnings before interest, taxation, depreciation and amortisation (EBITDA) performance in the second half of the year of approximately R 100 million (US $8 million), despite a very challenging macroeconomic environment.
This compares to a loss before interest, taxation, depreciation and amortisation (LBITDA) of R 1,1 billion
(US $70 million) recorded in the first half of the year.
Earnings were further impacted by R 3,9 billion in additional depreciation charges and approximately R 6,0 billion in finance charges for the year as the LCCP units reached beneficial operation.
Our Energy business’s gross margin percentage decreased from 43% in the prior year to 38% due to the significant impacts of supply and demand shocks that led to lower crude oil prices and product differentials.
We expect that oil prices will remain low for the next 12 to 18 months as the impact of COVID-19 becomes better understood. Oil markets also continued to remain exposed to shifts in geopolitical risks as well as supply and demand movements.
Despite experiencing softer commodity chemical prices across most of our sales regions due
to weaker global demand and increased global capacity, our Base Chemicals and performance Chemicals businesses, including LCCP, reported increased sales volumes of 19% and 8% respectively and maintained robust results on certain products, ensuring a level of resilience in our cash flows.
Total cash fixed costs for the first half of the year were trending above 10% compared to the prior period, however, in the second half, we significantly improved our total cash fixed cost performance resulting in the full year cost remaining flat when compared to the prior year.
This was largely attributable to the implementation of our comprehensive response plan focusing on cash fixed cost reduction and enhanced cash flow.
As a result, our key metrics were impacted as follows:
- Working capital managed to optimal levels achieving an additional benefit of R 9,2 billion relative to our internal plans. This resulted in a historical low working capital ratio of 12,5% compared to 14,8% for the prior year. Investment in working capital decreased by R 5,8 billion during the year.
- Capital expenditure optimised by approximately R 6,0 billion by deferring certain expenditure without compromising on safety and the reliability of our operations.
- Loss before interest and tax (LBIT) of R 111,0 billion compared to earnings before interest and tax (EBIT) of R 9,7 billion in the prior year.
- Adjusted EBITDA (1) declined by 27% from R 4 7,6 billion in the prior year to R 35,0 billion.
- Basic earnings per share (EPS) decreased to a R 147,45 loss per share compared to earnings per share of R 6,97 in the prior year.
- Headline earnings per share (HEPS) decreased by more than 100% to a R 11,79 loss per share compared to the prior year and
- Core headline earnings per share (2) (CHEPS) decreased by 61% to R 14,79 compared to the prior year.
|Key metrics||2020||2019||Change %|
|(LBIT)/EBIT (R million)||(111 030)||9 697||(more than 100)|
|Adjusted EBITDA 1 (R million)||34 976||47 637||(27)|
|Headline (loss)/earnings (R million)||(7 285)||18 941||(more than 100)|
|Basic (loss)/earnings per share (Rand)||(147,45)||6,97||(more than 100)|
|Headline (loss)/earnings per share (Rand)||(11,79)||30,72||(more than 100)|
|Core headline earnings per share (2) (Rand)||14,79||37,65||(61)|
|Dividend per share (Rand)|
|– Interim (Rand)||0,0||5,90||(100)|
|– Final (Rand)||0,0||0,0||0|
- Adjusted EBITDA is calculated by adjusting EBIT for depreciation and amortisation, share-based payments, remeasurement items, movement in environmental provisions due to discount rate changes, unrealised net losses/(gains) on all derivatives and edging activities and unrealised translation losses arising on the translation of monetary assets and liabilities into functional currency. We believe Adjusted EBITDA and Core HEPS as noted below, are useful measures of the Group’s underlying cash flow performance. However, this is not a defined term under IFRS and may not be comparable with similarly titled measures reported by other companies. (Adjusted EBITDA constitutes pro forma financial information in terms of the JSE Limited Listings Requirements and should be read in conjunction with the basis of preparation and pro forma financial information as set out in the full set of audited summarised financial statements.)
- Core HEPS is calculated by adjusting headline earnings per share with certain once-off items (provision for tax litigation matters and LCCP cash fixed cost with limited corresponding gross margin), year-end close adjustments and depreciation and amortisation of capital projects (exceeding R 4 billion) which have reached beneficial operation and are still ramping up and share-based payments on implementation of B-BBEE transactions. Year-end close adjustments include unrealised net losses/(gains) on all derivatives and hedging activities and unrealised translation losses arising on the translation of monetary assets and liabilities into functional currency in order to remove volatility from earnings from year to year. (Core HEPS constitutes pro forma financial information in terms of the JSE Limited Listings Requirements and should be read in conjunction with the basis of preparation and pro forma financial information as set out in the full set of audited summarised financial statements.)
|Net asset value||2020||2019||Change %|
|Total assets (R million||479 162||469 968||2|
|Total liabilities (R million)||319 914||244 173||31|
|Total equity (R million)||159 248||225 795||(29)|
|Turnover (R million)||(LBIT)/EBIT (R million)|
|20 876||19 891||Mining||2 756||4 701|
|5 184||5 204||Exploration and Production||1 197||(889)|
|83 803||67 901||Energy||(6 678)||16 566|
|48 813||52 683||Base Chemicals||(70 804)||(1 431)|
|68 296||69 197||Performance Chemicals||(24 455)||(7 040)|
|78||30||Group Functions||(13 046)||(2 210)|
|227 050||214 906||Group performance||(111 030)||9 697|
|(23 474)||(24 539)||Intersegmental turnover|
|203 576||190 367||External turnover|
Balance sheet management
Cash generated by operating activities decreased by 18% to R 42,4 billion compared to the prior year. This was largely due to the softer macroeconomic environment during the first six months of the year which was further impacted by the severe economic consequences from the COVID-19 pandemic and lower oil prices during the second half of the year, coupled with the LCCP still being in a ramp-up phase.
The decrease was partially negated by another strong working capital and cost performance from the foundation business. Investment in working capital decreased by R 5,8 billion during the year due to focused management actions, resulting in a working capital ratio of 12,5%.
To create flexibility in Sasol’s balance sheet during our peak gearing period, we have successfully engaged with our lenders to waive our covenants as at 30 June 2020 and to lift our covenants from 3,0 times to 4,0 times of Net debt: EBITDA (bank definition) as at 31 December 2020.
This provides additional flexibility, which is subject to conditions, consistent with our capital allocation framework, prioritising debt reduction through commitments to suspend dividend payments and acquisitions while our leverage is above 3,0 times Net debt: EBITDA.
We will also reduce the size of our facilities as debt levels reduce. Our Net debt: EBITDA ratio on 30 June 2020, based on the revolving credit facility and US dollar term loan covenant definition, was 4,3 times. The weaker Rand/US$ dollar exchange rate on 30 June 2020 impacted Net debt: EBITDA by 0,6 times.
During the year we secured incremental US dollar liquidity through a US $1 billion syndicated loan facility for up to 18 months and bilateral facilities (with a combined quantum of US $250 million) with a tenure of two years.
These facilities enhance our US dollar liquidity position during the peak gearing phase as the LCCP ramps up. In the South African market, we have both bank loan facilities and an R 8,0 billion Domestic Medium-Term Note Programme (DMTN) which was established in 2017.
In August 2019, we issued our inaugural paper to the value of R 2,2 billion in the local debt market under this DMTN programme.
As of 30 June 2020, our total debt was R 189,7 billion compared to R 130,9 billion as of 30 June 2019, with approximately R 174,6 billion (US $10,1 billion) denominated in US dollar.
Our balance sheet is highly geared, requiring a reduction in US dollar denominated debt in order to achieve a targeted Net debt: EBITDA of less than 2,0 times and gearing of 30%, which we believe would be sustainable with oil at approximately US$45 per barrel (in real terms).
Through our comprehensive response plan, we have taken immediate steps to reset our capital structure by targeting to generate at least US $6 billion by the end of 2021.
Our gearing increased from 56,3% on 30 June 2019 to 114,5% mainly due to remeasurement items (39%) recognised, a weaker closing Rand/US dollar exchange rate (6%) and the adoption of the IFRS 16 ‘Leases’ accounting standard (4%).
Deleveraging the balance sheet is one of our highest priorities to ensure business sustainability to position us for the future to deliver value to our stakeholders.
Consistent with our long-term commitment to return to an investment grade credit rating, we are engaging with ratings agencies regarding the progress on our comprehensive response plan.
As of 30 June 2020, our liquidity headroom was in excess of US $2,5 billion well above our outlook to maintain liquidity in excess of US $1 billion, with available Rand and US dollar based funds improving as we advance our focused management actions.
We continue to assess our mix of funding instruments to ensure that we have funding from a range of sources and a balanced maturity profile. We have no significant debt maturities before June 2021 when the US $1 billion syndicated loan becomes due.
In accordance with IAS 1 ‘Presentation of Financial Statements’, the recent conditions which underlie the covenant waiver requires an assessment of our debt maturity that resulted in a further US $1 billion being classified to short-term debt on 30 June 2020.
Our net cash on hand position increased from R 15,8 billion as of 30 June 2019 to R 34,1 billion mainly due to proceeds received from the US $1,0 billion syndicated loan as well as draw downs on the revolving credit facility negated by LCCP capital expenditure for the year.
Actual capital expenditure, including accruals, amounted to R 35 billion. This includes R 14 billion (US $0,9 billion) relating to the LCCP and is in line with our internal targets.
In line with our financial risk management framework, we continue to make good progress with hedging our currency and ethane exposure. For further details of our open hedge positions we refer you to our Analyst Book (www.sasol.com).
Further cautionary announcement
Shareholders of Sasol (Shareholders) are referred to various cautionary announcements regarding the expanded and accelerated asset disposal programme and the rights issue, the last announcement released on the Stock Exchange News Service on 28 July 2020.
Accordingly, Shareholders are advised to continue exercising caution when dealing in the Company’s securities until full terms announcements on the disposal of the air separation
units, the US Base Chemicals partnering process and the rights issue are published.
Dividend payments are an important part in our capital allocation framework. However, given our current financial leverage and the risk of a prolonged period of economic uncertainty, the Board believes that it would be prudent to continue with the suspension of dividends.
This will allow us to continue to protect our liquidity in the short-term and focus on reducing leverage in order to create a firm platform to execute our strategy and drive long-term shareholder returns.
In addition, in accordance with the covenant amendment agreement with lenders, we will not be in a position to declare a dividend for as long as Net debt: EBITDA is above 3,0 times. We expect the balance sheet to regain flexibility following the implementation of our comprehensive response plan.
Update on the Lake Charles Chemicals Project (LCCP)
Ongoing focus as we ramp up all units to beneficial operation
At the LCCP, we maintain our focus on safely improving productivity and bringing all the units to beneficial operation. The LCCP continued with its exceptional safety record with a recordable case rate (RCR) of 0,11.
After the ethoxylates (ETO) expansion achieved beneficial operation in January 2020, the alcohol expansion and the alumina expansion, as well as the new Guerbet unit, achieved beneficial operation in June 2020. As a result, 100% of the LCCP’s Specialty Chemicals units are online and 86% of total nameplate capacity of the LCCP is operational.
The last remaining unit to come online will be the low density polyethylene (LDPE) unit, which was damaged during a fire in January 2020.
The unit is expected to achieve beneficial operation before the end of October 2020. Some challenges in restoring the unit have resulted in a slight delay to the previous market guidance of the end of September 2020.
During the time of the delay in the LDPE unit start-up, the ethylene produced by the cracker and destined for the unit is being sold to third parties.
As a result, projected earnings for the LCCP complex in this financial year will be impacted only by the loss in the margin of ethylene to LDPE.
In addition, the insurance claims process is underway and the first insurance proceeds have been received.
The overall LCCP cost estimate is tracking US$12,8 billion as per our previous guidance. The new ethane cracker produced at an average rate of above 80% of nameplate capacity during the fourth quarter of the year.
COVID-19 had a limited impact on the LCCP construction and commissioning activities during the fourth quarter of the yearand mitigation plans are in place to minimise potential impacts going forward.
The close-out and demobilisation of the LCCP is progressing according to plan with the remainder of the work limited to the removal of scaffolding. Site demobilisation of construction equipment, infrastructure and services will be completed after the last unit achieves beneficial operation.
The people on site have reduced to less than 400 and follows the demobilisation plan. This includes the LDPE restoration resources.
The following change to the Board of the Company occurred after the publication of the Company’s Interim Financial Results on 21 February 2020:
– Ms KC Harper was appointed as Independent Director with effect from 1 April 2020.