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SOL/SOLBE1 - Sasol Limited - Sasol chief financial officer update for the nine
months ended 31 March 2012
Sasol Limited
(Incorporated in the Republic of South Africa)
(Registration number 1979/003231/06)
Sasol Ordinary Share codes: JSE : SOL NYSE : SSL
Sasol Ordinary ISIN codes: ZAE000006896 US8038663006
Sasol BEE Ordinary Share code: JSE : SOLBE1
Sasol BEE Ordinary ISIN code: ZAE000151817
("Sasol")
SASOL CHIEF FINANCIAL OFFICER UPDATE FOR THE NINE MONTHS ENDED 31 MARCH 2012
Highlights for the period
* Sasol Synfuels delivers a strong third quarter performance and is on
track to achieve production guidance of approximately 7,1mt for the full
financial year.
* ORYX GTL achieves a new production record.
* Sasol Mining meets the Mining Charter BEE ownership requirements, ahead
of the 2014 deadline.
Dear Sasol stakeholder,
In the first nine months of the 2012 financial year, oil prices rose while
chemical prices remained largely flat amid continuing global economic
uncertainty. In our third quarter, the group benefited from improvements in
the operational performance of its main businesses, as well as a weaker
rand/dollar exchange rate. Sasol Synfuels recovered well from the plant
incidents that took place during the first half of the financial year to
deliver much improved third quarter production volumes. Our Canadian shale gas
assets achieved improved daily production rates while ORYX GTL and Arya Sasol
Polymer Company exceeded the previous year`s performance. Chemical businesses
were under pressure due to high feedstock prices as well as softer demand and
product prices.
We are progressing in the development of our upstream assets. We inaugurated
our new Thubelisha mine shaft, a first milestone in our mining replacement
project. Our gas engine power plants are progressing well with the South
African project remaining on track to ramp up our additional self generated
electricity to 60% of our requirements by the 2013 calendar year.
The high level specifications for Clean Fuels 2 were gazetted in South Africa
in June 2012. We continue to engage with the government on cost-recovery
mechanisms and detailed specifications.
We remain confident that, based on the production guidance and macro-economic
indicators, we will deliver solid operational results and increased earnings
for the 2012 financial year compared to the attributable earnings of R19,8
billion in the 2011 financial year.
1. Overall macro-economics support group profitability
The global economic recovery remained unbalanced and fragile in the nine
months to 31 March 2012. US economic growth proceeded at a modest pace, with
unemployment generally trending lower. The eurozone continued to struggle;
with GDP contracting in the final quarter of the 2011 calendar year (CY) and
remaining essentially flat in the first quarter of CY2012. The euro area`s
unemployment rate hit a record high of 11%, but in some countries, like Spain,
Greece, Ireland and Portugal, the picture was worse than the aggregate number
suggests. In South Africa, economic growth remained sluggish and mainly
consumer-led, with the performance of the manufacturing sectors still well
below their pre-crisis highs.
During the nine months ended 31 March 2012, the high oil price combined with a
weakening of the rand/US dollar exchange rate resulted in a 31% rise in
average domestic fuel prices. International chemical prices were flat, due to
lower demand in downstream markets because of weaker consumer confidence in
Europe and a slowdown in the Chinese economy. Chemical product margins
continued to be under pressure as feedstock prices increased in line with
higher oil prices.
Our European chemicals businesses experienced lower demand and softer product
prices during this period in light of weakening European macroeconomic
conditions. We remain focused on working capital management, cost containment,
planning and optimisation, and margin optimisation activities.
2. Improved operational performance
Sasol Synfuels` year-to-date production at the end of March 2012 was 5,26
million tons. This represents a 1,89 million ton increase from year-to-date
production levels at the end of December 2011. This demonstrates the recovery
of the operations since the phased maintenance outage, industrial action and
production incidents which negatively impacted production in the first half of
the 2012 financial year. The strong production performance, as well as
favourable prices, boosted operating margins.
We recently reached two significant Secunda Growth Programme milestones. Two
of four new gasifiers and the 17th reformer were commissioned during the
fourth quarter of the financial year and are running well. The additional
equipment we are adding to the site will provide us with additional fuel and
chemical feedstock, spare capacity for greater flexibility as well as
additional efficiencies when the growth programme is completed.
In Qatar, our ORYX GTL joint venture plant performed well, achieving 3,6
million barrels (mmbbl) (Sasol`s 49% share) cumulative production over the
nine month period at a utilisation rate in excess of 80%. This was achieved
despite a planned maintenance outage earlier this calendar year. Our ORYX GTL
operations continue to achieve new production records. In April and May 2012,
the monthly average production surpassed 34 000 bbl/d (5% above design
capacity).
Sasol Olefins & Surfactants` production in the nine months to 31 March 2012
was slightly lower, as sales volumes were deliberately reduced to meet softer
demand. We have seen some improvement in the market recently and remain
confident that we can maintain operating margins around the upper single digit
levels for the year on the back of our continued focus on product portfolio
optimisation, some pass-through of price increases and strict cost management.
Our Lake Charles operations continued to benefit from low US ethane prices.
The business also benefitted from a profit arising on the disposal of its
Witten-based production facilities and the associated oleochemicals business
to Cremer Oleo GmbH & Co amounting to R282 million.
Arya Sasol Polymer Company continued to perform well. Production volumes for
the period were negatively influenced by the downtime required to debottleneck
the demethaniser column in the cracker section of the plant. The work was
completed successfully and the cracker has since concluded its full-rate
trials and the plants are running steadily at higher rates. Sasol`s 50% share
of the year-to-date total production output from the plants was 302 kt
achieving an average utilisation rate of approximately 84%.
Our South African-based polymers business continued to experience margin
pressure in line with the global polymer industry. This was due to high
feedstock costs, low market demand as a result of slowing emerging market
growth, the European debt crisis, and increased competition from new
producers. The business did, however, benefit from the weaker rand. Operations
stability and operational efficiency are key focus areas for this business and
we have made significant progress with the projects identified to improve
production performance. The Ethylene Purification Unit (EPU5) project will
increase ethylene available for our polyethylene plants and is expected to
come on line in CY 2013.
Sasol Solvents` business performance for the nine months to 31 March 2012 was
disappointing, due to high feedstock costs and lower product prices resulting
from weaker demand. Production volumes were also depressed by constrained
feedstock availability on the back of the Sasol Synfuels` incidents in the
first half of FY2012, planned shutdowns as well as market constraints. The
weaker rand did, however, ease pressure on margins. Given the current weak
market conditions, we embarked on various business improvement and
optimisation initiatives to improve the performance of our plants and
marketing activities.
In our Sasol Petroleum International (SPI) business, the Inhassoro I-9z well
drilled in 2010 resulted in the first light oil discovery in Mozambique. In
March 2012 we launched an extended well test (EWT) to test production rate and
fluid composition, which will assist in determining the economic viability of
developing the Inhassoro field. If successful, the Inhassoro field development
will improve the viability of a potential liquefied petroleum gas (LPG)
project in Mozambique.
Upstream feasibility studies on the 2008 and 2009 Njika-1 and Njika-2 gas
discoveries in Block 16 and 19 offshore Mozambique were recently completed.
These studies included in-house technical work and an independent assessment
by a third party consultant. Results suggest that an economic development of
the Njika gas discoveries is highly unlikely and US$56,8 million of
capitalised costs will therefore be written off in FY12.
In Gabon, oil production remained steady at around 20 000 bbl/d in the asset
in which we hold a 27,75% working interest. The Etame Expansion Project, to
evaluate the feasibility of increasing oil recovery in the permit, progressed
well. We expect the drilling campaign to commence in October 2012, which will
include the drilling of two development wells.
In Australia, Sasol Petroleum International (SPI) entered a farm-in agreement
in February 2012 for 35% equity in Woodside`s operated WA-433-P license,
offshore in the Carnarvon Basin. The operator drilled the Vucko-1 exploration
well in April 2012 but no hydrocarbons were found. The well was found to be
dry and will have a negative impact of approximately US$ 35 million.
Our Canadian shale gas assets (Farrell Creek and Cypress A) are under pressure
because of low gas market prices, higher-than-expected drilling and completion
costs and high depreciation. This resulted in a substantial loss position in
the year to date. The gas production rate for the quarter to the end of March
averaged 104,7 million standard cubic feet per day (mmscf/d) (100% gross). The
year-to-date output for the assets on 31 March 2012 was 11,1 billion standard
cubic feet (bscf) (100% gross).
The Talisman Sasol Montney Partnership agreed to reduce the number of active
rigs to four for the first half CY2012 and to three rigs from August 2012, in
response to the depressed gas market prices. The reduction in the number of
rigs will not impede the de-risking of the assets that is currently underway.
The partnership will still achieve its land-retention objectives. Sasol
remains fully aligned with Talisman on its asset development strategy. We
remain committed to economically viable appraisal and production activities
and prudent capital spending at both our sites. This is managed in a way that
does not jeopardise our gas-to-liquids (GTL) ambitions with respect to GTL gas
cover requirements.
3. Financial performance
Weaker rand increases inflationary cost pressures
The weaker rand/US dollar exchange rate (R7,67/US$ at 31 March 2012)
negatively impacted cash fixed costs by 3% for the nine months ended 31 March
2012. Cash fixed costs, excluding once-off and growth costs, increased by 4%
in real terms. We expect to derive sustainable cost savings through our energy
self-sufficiency project, improved production reliability as well in the
medium term from the standardisation and consolidation of our group SAP
systems.
Strong cash generation funds growth and returns
Healthy cash generation for the nine months ended 31 March 2012 reduced group
debt after funding significant capital expenditure, allowing the group to
maintain a strong balance sheet. Our strong balance sheet supports the funding
of our capital growth programme, potential acquisition opportunities as well
as our progressive dividend policy whilst providing a buffer against
volatility and retaining flexibility in uncertain credit markets where the
cost of funding has increased. We continue to focus on strengthening working
capital management and monitoring credit exposure and counterparty risks.
4. Projects update
Good progress made with our mining replacement project
As part of the R14 billion mining replacement project to replace 60% of our
Sasol Mining operating capacity in Secunda in the next eight years, we
inaugurated the R3,5 billion Thubelisha Shaft at the Twistdraai Colliery in
Mpumalanga, South Africa in May 2012. The shaft comprises an operation
delivering more than 8 million tons per annum (mtpa) of coal over a period of
25 years from a maximum of 12 coal-production sections. It is the first
milestone in this large-scale project to replace ageing operations. The shaft
will extend the life of the Twistdraai Colliery beyond 2039 and will supply
coal to Sasol Synfuels, as well as to the export markets.
Sasol`s Gas Engine Power Plant (GEPP) project in progress
The construction of the Sasolburg project to produce 140 megawatts (MW) of
power using natural gas is progressing well. The first gas engines arrived in
Sasolburg in May 2012. The R1,8 billion project will replace coal-fired power
generation and enable Sasol to reduce its carbon dioxide (CO2) emissions from
Sasolburg by a further one million tons a year. Construction started in July
2011 and commissioning is expected in the fourth quarter of CY 2012. Sasol
concluded an agreement with Finnish company Wartsila South Africa to operate
and maintain the plant for three years. As a result of this and other
projects, Sasol is on track to produce approximately 60% of its electricity
requirements by CY 2013.
Growing our heartland in Mozambique
We recently completed the US$220 million gas project to expand the capacity of
the Central Processing Facility (CPF) in Mozambique. This increases the CPF`s
capacity to 183 million gigajoules per annum (MGJ/a) from 120 MGJ/a. The
additional 63 MGJ/a from the expansion is split as follows:
a) 27 MGJ/a for the Mozambican electricity market;
b) 27 MGJ/a for the South African market, through a gas sales contract
with Sasol Gas; and
c) 9 MGJ/a as royalty gas allocated to the Mozambican government.
Through Sasol New Energy, Sasol is also looking at developing additional gas-
fired electricity generation in Mozambique, in partnership with the country`s
state-owned power utility Electricidade de Mocambique (EDM) at Ressano Garcia.
A final investment and funding decision is expected in the second half of CY
2012. The Mozambican Gas Engine Power Plant Project (49% Sasol shareholding)
for a 140 MW electricity generation power plant is expected to start operating
in CY 2014.
Canada GTL
Sasol and Talisman are currently reviewing the results of the feasibility
study of constructing a 48 000 bpd GTL plant in Western Canada. For their own
internal reasons, Talisman has decided that they will not be exercising their
right to participate in the Front End Engineering and Design (FEED) phase of
such a GTL plant. The commercialisation of GTL technology remains a core
strategic driver of Sasol. Sasol will finalise its assessment of the
feasibility study and will take a decision on whether or not to proceed to the
FEED phase of the project in the second half of 2012.
US Lake Charles GTL
The US Lake Charles GTL feasibility study is progressing well and a decision
to proceed to the FEED phase will be made in the second of 2012.
US Lake Charles Ethane Cracker
The US Lake Charles Ethane Cracker feasibility study is progressing well and a
decision to proceed to the FEED phase will be made in the 2013 calendar year.
5. Update on strategic issues
Sasol Mining meets the Mining Charter BEE ownership requirements
On 11 May 2012, the Department of Mineral Resources (DMR) credited Sasol
Mining with 26% black economic empowerment (BEE) ownership stemming from the
participation of black Sasol Mining employees in the Sasol Inzalo share
transaction. As the Ixia Coal transaction contributes further to Sasol
Mining`s BEE ownership, the combined BEE ownership in Sasol Mining is in
excess of 40%, and exceeds the Mining Charter requirement of 26% by 2014.
Clean Fuels 2 update
The Clean Fuels 2 (CF2) specification regulations (R 431 Correction notice)
were gazetted on 1 June 2012. We continue to engage with the South African
Government (National Treasury and the Department of Energy) on cost-recovery
mechanisms and specifications to be prepared and published by the South
African Bureau of Standards.
Polymers competition enquiry
The South African Competition Commission (the Commission) alleges that Sasol
Chemical Industries Limited charged excessive prices for propylene and
polypropylene in the South African market from 2004 to 2007. We are disputing
the Commission`s allegations. In 2010, the matter was referred by the
Commission to the Competition Tribunal. The trial was originally set down to
be heard before the Competition Tribunal from 16 July 2012 to 10 August 2012.
However, as a result of an application brought by the Commission to postpone
the hearing, the trial is now set down for mid-May to June 2013.
Reviewing our activities in Iran
In November 2011, we announced that we had entered into preliminary talks for
a possible divestiture of our share in Arya Sasol Polymer Company. The plant
produces integrated ethylene and polyethylene products for export. The
products are not used in the development of petroleum or natural gas resources
or nuclear power in Iran. We continue to engage with a number of interested
parties who include business and government stakeholders. Further
announcements will be made once sufficient progress has been made.
In view of recent developments regarding trade restrictions and possible oil
sanctions, we recently terminated our purchases of Iranian crude oil. Our
procurement of Iranian crude oil stood at 12 000 bbl/d, representing about 20%
of our crude requirement for processing at our Natref joint venture refinery.
6. Guidance for the full year
We expect the global and South African economy to maintain a modest recovery
into the new financial year. However, the outcome of a number of risks,
including events related to the European debt-crisis, is clouding the outlook.
The United States also faces challenges to resolve its fiscal impasse. In
South Africa, the policy conference of the ruling African National Congress
runs from 26 June 2012 to 29 June 2012 and the party`s elective conference is
scheduled for the end of CY 2012.
We expect an overall solid production performance for the 2012 financial year:
* Sasol Synfuels` volumes will be approximately 7,1 Mt;
* Volumes from our shale gas venture in Canada will grow steadily;
* The full-year average utilisation rate at ORYX GTL in Qatar will be in
the upper 80% range of nameplate capacity; and
* Full-year production at Arya Sasol Polymer Company in Iran will be
approximately 84% of nameplate capacity.
Although the weaker rand continues to exert pressure on our South African
businesses we expect that our fixed costs increase will be in line with
inflation (i.e. production price index, PPI). Oil prices are expected to be
volatile over the near term due to weakening demand for oil in Europe, softer
growth in emerging markets and the US, as well as stronger-than-expected
increases in supply. Expected currency and commodity price volatility will
impact the valuation of closing balances at year end.
Based on the production guidance and macro-economic indicators, we expect to
deliver increased earnings for the 2012 financial year compared to the
attributable earnings of R19,8 billion in the 2011 financial year.
However, the currency and commodity price volatility to which our earnings are
particularly sensitive, together with any adjustments that may arise from our
year-end closure process, would determine whether we issue a trading statement
to the market in terms of the JSE Listings requirements.
Sasol`s cash balance is expected to increase in the current financial year
from the previous year, mainly due to an increase in cash generated from
operating activities despite higher capital expenditure. We estimate group
capital expenditure for the full financial year to be approximately R29
billion. This is in line with previous guidance.
The forecast financial information appearing in this update has not been
reviewed or reported on by Sasol`s external auditors. We will release Sasol`s
full-year results on Monday, 10 September 2012.
Best regards,
Christine Ramon
28 June 2012
Johannesburg
Issued by sponsor: Deutsche Securities (SA) (Pty) Ltd.
7. Notice of site visit
Secunda & Sasolburg site visit and Management Presentation - 1 and 2 November
2012
8. Other events 2012
* 10 September - Full year 2012 financial results release and Dividend
declaration
* 15 October - Dividend payment (electronic and certified register)
* 27 November - Sasol Inzalo Public Limited Annual General Meeting
* 30 November - Sasol Limited Annual General Meeting
* 3 December - CFO Letter announcement
9. Investor Relations Contacts
investor.relations@sasol.com +27 11 441 3113
Raj Naidu (Analyst Contact)
Executive: Investor Relations and Shareholder Value Management
Zanele Salman (Technical Contact)
Tanya Landman (Financial Contact)
Forward-looking statements disclaimer:
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 and cost
reductions. Words such as "believe", "anticipate", "expect", "intend", "seek",
"will", "plan", "could", "may", "endeavour" 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 under the
Securities Exchange Act of 1934 on Form 20-F filed on 7 October 2011 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.
Date: 28/06/2012 09:04:06 Supplied by www.sharenet.co.za
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