"The changes made to our business since 2011, have resulted in a more effective and cost conscious organisation,” said President and Chief Executive Officer, David E. Constable. “Through the various improvements that have been introduced, we are not only more resilient as a company, but far better equipped to maintain momentum and respond decisively to an evolving global landscape.
“Overall, we continued to deliver strong operational and cost performance despite the volatile macro economic environment. With oil prices moving dramatically lower over the last six months, the management team has formulated a comprehensive Response Plan to conserve cash and further refine our organisational structures and near term strategies.
“The benefits of the detailed work we are doing now will ensure that Sasol emerges from the current challenging environment as an even leaner and more focused business."
Interim financial highlights
Earnings attributable to shareholders for the six months ended 31 December 2014increased by 54% to ZAR19.5 billion from ZAR12.7 billion in the prior period. Headline earnings per share increased by 6% to ZAR32.00 and earnings per share increased by 53% to ZAR32.04 compared to the prior period.
Profit from operations of ZARR30.0 billion increased by 39% compared to the prior period. This achievement was due to an overall strong operational performance from the Regional Operating Hubs (ROHs) coupled with increased sales volumes and improved margins in the Performance Chemicals and Base Chemicals Strategic Business Units. The group's profitability was further enhanced by a 9% weaker average rand/US dollar exchange rate (ZAR10.99/US$ for the six months ended 31 December 2014 compared with ZARR10.08/US$ in the prior period). This benefit was partially offset by a 19% decline in average Brent crude oil prices (average dated Brent was US$89.00/bbl for the six months ended 31 December 2014 compared with US$109.83/bbl in the prior period).
Response to lower international oil prices
In response to a lower for longer oil price environment, the company announced its Response Plan on 28 January 2015. It has set a 30 month cash conservation target range of between ZAR30 billion to ZAR50 billion, using 31 December 2014 as the baseline. This cash conservation target range supplements the current Business Performance Enhancement Programme sustainable cost savings target of at least ZAR4.3 billion/y, from financial year 2017.The Response Plan target of ZAR30 billion to ZAR50 billion will be realised from the following key areas:
- Capital portfolio phasing and reductions – target of ZAR13 billion to ZAR22 billion.
- Capital structuring – target of ZAR8 billion to ZAR12 billion.
- Further cash cost reductions – target of ZAR4 billion to ZAR7 billion of which ZAR1 billion/y will be considered sustainable at the end of the 30 month period.
- Working capital and margin improvements – target of ZAR5 billion to ZAR9 billion.
Outlook
The global economic environment remains volatile and uncertain. The company expects oil prices to remain low for the rest of the 2015 calendar year. It also expects the rand exchange rate to be impacted by quantitative easing in the Eurozone, uncertainties relating to the interest rate normalisation by key central banks and infrastructure constraints in South Africa. Both oil price and rand exchange rate developments are outside of the company’s influence, and therefore its focus remains firmly on factors within its control, which include volume growth, margin improvement and cost optimisation.
Oil and other commodity price risk hedging are evaluated on an ongoing basis. The market is constantly monitored for risk management opportunities, taking cognisance of integration benefits and the strength of Sasol's balance sheet.
Sasol expects an overall strong production performance for the 2015 financial year, with:
- Liquid fuels product volumes for the Energy SBU in Southern Africa to be approximately 59 million bbls.
- The average utilisation rate at ORYX GTL in Qatar to be above 90% of nameplate capacity.
- Base Chemicals normalised sales volumes to be slightly higher than the previous financial year with margins under pressure due to lower international oil prices.
- Performance Chemicals sales volumes to outperform the previous financial year on the back of increased market demand.
- Average Brent crude oil prices to be at least 30% lower during the second half of the financial year compared to the first half.
- Normalised cash fixed costs to follow SA PPI.
- Capital expenditure of ZAR45 billion for 2015, ZAR65 billion in 2016 and ZAR60 billion in 2017 as the company progresses with the execution of its growth plan and strategy.
- The balance sheet gearing up to a level of between 2% and 7% at year end.
- The Response Plan cash flow contribution from all streams to range between ZAR6 billion and ZAR10 billion.
Adapted from press release by Rosalie Starling