Wrap Text
Sasol Chief Financial Officer Update
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”)
7 June 2013
SASOL CHIEF FINANCIAL OFFICER UPDATE
Highlights for the period
* Overall solid operational performance despite volatile
macro environment
* Sasol Synfuels continues to deliver strong operational
performance
* Long-lead equipment orders placed for US ethane cracker
* Sasol celebrates the 10 year anniversary of its listing
on NYSE
Dear stakeholder
On 9 April 2013, Sasol celebrated the 10 year anniversary of
its listing on the New York Stock Exchange (NYSE). The
listing, following Sasol’s listing on the Johannesburg Stock
Exchange in 1979, made it possible for Sasol to access the
US capital market, while growing its profile in this
investment community as a compelling investment proposition.
Sasol’s shares trade in the form of American Depositary
Receipts (ADRs) and listed at US$10,73 per share. Our ADR
share price has increased almost five fold since our
listing. The success of our listing bodes well for our
future US investment opportunities. Coupled with our NYSE
celebrations, we held very successful investor strategy days
in New York and Cape Town. We were able to showcase our US
investment proposition in respect of the integrated, world-
scale ethane cracker and downstream derivatives units and
the gas-to-liquids (GTL) and chemical value-adds facility at
Lake Charles in Louisiana. We are currently executing the
front-end engineering and design (FEED) phase of the
integrated, world-scale ethane cracker and downstream
derivatives and will commence FEED for the GTL and chemicals
value-adds facility during the second half of the 2013
calendar year. We have already placed orders for long-lead
equipment for the ethane cracker.
In the first nine months of the 2013 financial year*, we
have delivered solid financial results. Sasol Synfuels
continues to deliver strong operational performance and a
weaker South African rand has enhanced group profitability.
The average Brent crude oil price for the nine months
softened. Chemical prices remained depressed, negatively
impacting our chemicals businesses, where demand continues
to remain soft.
We continue to make good progress, albeit slower than we
initially anticipated, on our disposal of Arya Sasol
Polymers Company (ASPC). We concluded a memorandum of
understanding with an interested party regarding the
disposal of ASPC and at the date of this update, we are
finalising closing activities.
Furthermore, we continue to focus on those factors within
our control including cost containment, operational
efficiencies and margin improvement. However, our current
cost inflation is expected to be above normal producers’
price index (PPI) inflation trends for the 2013 calendar
year.
We remain confident that, based on the production guidance
and our macroeconomic assumptions, we will deliver solid
operational performance and earnings for the 2013 financial
year compared to the reported attributable earnings of R23,6
billion in the 2012 financial year, excluding major once-off
items such as the impact resulting from the ASPC disposal.
Best regards,
Christine Ramon
7 June 2013
Johannesburg
*This update is based on information for the nine months
ended 31 March 2013, however, where practical, information
to 30 April 2013 has been included to indicate business
performance.
1. Macroeconomics remain volatile
April March March change in %
2013 2013 2012 March
YTD YTD YTD YTD
Macroeconomic indicators
Average rand/US$ 8,68 8,64 7,67 13%
Brent crude oil (US$/b) 109,85 110,71 113,75 (3%)
Henry Hub gas price
(US$/mmbtu) 3,34 3,25 3,32 (2%)
Product prices
SA fuel price (US$/b) 130 129 131 (2%)
Ethylene (US$/ton) 1 615 1 611 1 548 4%
Propylene (US$/ton) 1 417 1 414 1 468 (4%)
Polymers basket (US$/ton) 1 246 1 247 1 251 -
Solvents basket (US$/ton) 1 222 1 240 1 250 (1%)
Prices reflect international commodities or baskets of
commodities and are not necessarily Sasol specific.
Sources: RSA Department of Energy, ICIS-LOR, Reuters,
Platts, International Energy Agency
World economic growth remained cautious in the third
quarter of Sasol’s current financial year as gross
domestic product (GDP) growth slowed in the United States
(US) and the euro zone recession deepened. In contrast,
Chinese economic growth accelerated in the quarter,
easing fears of a hard landing. In South Africa, GDP
growth improved in the quarter even as a further
contraction in mining output continued to weigh on
overall economic activity.
In recent months, the downside risks to the global
economic outlook have eased, but have not disappeared.
The fiscal cliff in the US was avoided early in the 2013
calendar year. However, the impact of tax increases and
the budget sequester will likely only become more
apparent during the course of the 2013 calendar year.
Following the European Central Bank’s pledge to do
“whatever it takes” to ensure the survival of the euro,
risks associated with a disintegration of the euro zone
have been reduced significantly. While the Chinese
economy appears to have avoided a hard landing, recent
weak economic activity indicators do raise questions over
the durability of the recovery. Nonetheless, it is
believed that growth in China will stabilise around 7,5 –
8,0%.
In South Africa, uncertainty surrounding the outcome of
the upcoming wage negotiation process, potential
electricity supply shortages, anticipated slower growth
in household consumption expenditure and timid global
demand conditions are all likely to weigh on domestic
growth prospects during the course of this calendar year.
It is not expected that GDP growth will show a
significant improvement on the 2,5% growth recorded in
the 2012 calendar year.
The ebb-and-flow of news related to the health of the
global economy is likely to lead to ongoing oil price and
exchange rate volatility. Aside from global news flow,
South Africa specific factors such as potential labour
market instability, electricity supply constraints and
current account deficit concerns are expected to
exacerbate rand/US dollar exchange rate volatility.
Chemical product margins continued to be under pressure
as feedstock price increases outweighed the increases in
selling prices. This has been particularly evident in our
Sasol Polymers and Sasol Solvents businesses, which have
experienced lower demand and softer product prices on the
back of weakening European macroeconomic conditions. Our
Sasol Olefins and Surfactants (O&S) business managed to
maintain its total gross margin, despite a slight
reduction in volumes.
Across our operations, we remain focused on working
capital management, cost containment, production planning
and optimisation as well as margin improvement
activities.
2. Solid operational performance
change in %
April March March
March
2013 YTD 2013 YTD 2012 YTD
YTD
Total production
Sasol Mining (mt) 33,0 29,5 29,8 (1%)
Sasol Gas (mGJ) 132,9 119 112 6%
Sasol Synfuels (kt) 6 160 5 533 5 262 5%
Sasol Oil (m3) 6 390 534 5 706 861 6 056 387 (6%)
Total product yield
(%) 97,58 97,60 97,88 -
ORYX GTL* (mbbl) 3,6 3,3 3,6 (8%)
Canada shale gas
assets* (bscf) 19,9 18,1 11,4 59%
Arya Sasol Polymer
Company* (kt) 305 281 302 (7%)
Sasol O&S (kt) 1 650 1 466 1 488 (1%)
* Sasol’s share of production
Sasol Synfuels’ year-to-date production for the nine
months to 31 March 2013 was 5,5 million tons (mt). This
represents a 5% increase compared to the prior year
comparable period. The improved production is underpinned
by the commissioning of new plant and equipment, notably
four additional gasifiers, the impact of the 17th
reformer (steam methane reformer) and improved plant
stability. Included in the positive variance is the
impact of the 2012 industrial action. Delays experienced
during the gas heated heat exchange reformers’ (GHHER’s)
east turnaround are adversely impacting Sasol Synfuels’
production targets compared to the first half of the
financial year. Sasol Synfuels’ cash unit costs remain
under pressure as a result of higher coal feedstock
prices, as well as increased energy, labour and
maintenance costs. Sasol Synfuels’ cash cost inflation
per unit was, however, largely in line with PPI,
excluding the coal feedstock and the abnormal electricity
price increases.
Our ORYX gas-to-liquids (GTL) joint venture, in Qatar,
achieved 3,3 million barrels (mbbl) (Sasol’s 49% share)
cumulative production over the nine month period. The
decrease in production volumes compared to the prior year
is as a result of the planned statutory shutdown which
commenced in February 2013 and was completed in April
2013. The shutdown has enabled ORYX GTL to progress
various key de-bottlenecking projects which have already
resulted in operational benefits since start-up. Average
throughput for the month of May 2013 was above 106% of
design capacity.
The performance of our Sasol Olefins & Surfactants’
(Sasol O&S) business for the nine month period continues
to highlight the contrasting supply and market conditions
that prevail between our US and European operations. Our
US operations continued to benefit from low US ethane
prices, while our European based businesses came under
increased pressure as a result of reduced volumes and
lower margins. Total production and sales volumes for the
nine months to 31 March 2013 are marginally lower when
compared to the prior year comparable period. We expect
Sasol O&S’s operating margins to remain within the guided
7% to 11% range through the cycle. The 100 000 tons per
annum ethylene tetramerisation unit, currently being
constructed at Sasol O&S’s Lake Charles, Louisiana site
in the US, remains on schedule and is expected to start
up during the third quarter of the 2013 calendar year.
Arya Sasol Polymer Company (ASPC) production volumes were
7% down compared to the prior year comparable period.
Sasol’s 50% share of the year-to-date total production
output from the plants was 281 kilotons (kt), achieving
an average utilisation rate for the nine month period of
approximately 83% of design capacity. However, due to
logistics disruptions at ASPC, sales volumes were
negatively impacted.
Our South African-based polymers business continues to
experience severe margin pressure in line with the global
polymers industry, incurring an operating loss of R1 453
million, excluding income from associates of R318
million, for the nine months ended 31 March 2013.
Operating losses for the full financial year are expected
to be between R2,0 billion and R2,2 billion. Average
sales prices improved compared to the first six months of
this financial year, due to the weaker rand/US dollar
exchange rates. However higher feedstock costs eroded
these benefits. Sales volumes were 7% higher than the
prior year comparable period. This performance was
underpinned by a 7% increase in saleable production, due
to improved plant efficiencies coupled with more stable
operations. Cash fixed costs in this business continue to
remain under pressure and during the period, in addition
to normal inflation increases, additional maintenance
outage costs were incurred compared to the prior year
comparable period due to scheduled maintenance outages.
The Sasol Polymers business has commenced a turnaround
intervention to restore the overall profitability of the
business and the design phase is underway. Our projects
identified to improve production performance are making
significant progress. The Ethylene Purification Unit
(EPU5) project, which will increase ethylene available
for our polyethylene plants by approximately 48 kt per
annum, is expected to be operational in the second half
of the 2013 calendar year, while the C3 stabilisation
project will achieve beneficial operation during the
middle of the 2014 calendar year.
Sasol Solvents’ business performance for the nine months
to 31 March 2013 has improved from the first six months
of the financial year but, remains under pressure. Sales
volumes were 4% above those of the prior year comparable
period, despite production volumes being 2% below those
of the same period. Our European operations continue to
experience the effects of the euro zone crisis and
incurred losses for the nine month period. Margins remain
under severe pressure, mainly due to higher feedstock
prices. The weaker rand did, however, soften the effects
of lower US dollar selling prices and US margins.
In our other chemical businesses, the gross margin of our
Sasol Wax business for the nine months ended 31 March
2013 was 5% higher than the prior year comparable period,
despite 1% lower sales volumes. Hard wax sales for the
first nine months of the financial year are, however, at
similar levels compared to the prior year comparable
period. During the period, the electricity co-generation
plant in Hamburg, Germany was installed, with beneficial
operation being achieved in April 2013. It is anticipated
that this plant will yield a 16% energy cost saving and
reduce our carbon footprint by approximately 17 000 tons
per annum. Sasol Nitro experienced challenging operating
conditions during the period. The explosives business was
negatively impacted by the mining sector labour unrest
experienced in the first half of the financial year,
while the fertiliser business faced supply constraints
due to a slower ramp-up of the new limestone ammonium
nitrate (LAN) fertiliser granulation plant in Secunda,
which reached beneficial operation on 2 May 2013.
Sasol Petroleum International (SPI) successfully
completed the extended well test on the I9-Z light oil
well in the Inhassoro field in Mozambique which was part
of the appraisal programme for the Production Sharing
Agreement (PSA) licence area. The PSA licence area
includes several gas discoveries that are adjacent to the
producing Pande and Temane natural gas fields. A
comprehensive appraisal report for the PSA was submitted
to the Mozambican government at the end of November 2012.
Subsequent to this submission, Sasol notified the
government that various existing undeveloped discoveries
are deemed to be commercially viable. A field development
plan will be submitted within the allowed two year
period. The project has just entered the pre-feasibility
study phase and an application for a development and
production area was submitted to the Mozambican
authorities by 25 May 2013.
A 3-D seismic survey was acquired in the Sofala block,
offshore Mozambique, and 2-D seismic data is also
currently being acquired in the onshore Area A,
Mozambique.
The second exploration period for the Mozambican M-10
licence expired and the licence was relinquished,
subsequent to the drilling of the Mupeji-1 dry well.
The profitability of our Canadian shale gas assets
(Farrell Creek and Cypress A) continue to remain under
pressure resulting from the slow recovery of gas prices
in the US, coupled with higher depreciation. We
anticipate a continuation of the current loss position
for the full 2013 financial year. At 31 March 2013, our
share of the capital expenditure on the Canadian shale
gas assets amounted to CAD278 million for the nine month
period. At that date, there were a total of 90 wells on
stream in Farrell Creek and six wells on stream in
Cypress A, with 20 wells which have been drilled but not
yet completed.
Following on the completion of an aeromagnetic survey, a
nine core hole drilling campaign in the Botswana coal bed
methane licences commenced in December 2012, and has just
been completed. At present, we are analysing the data to
assess the next potential steps in the licence.
Sasol is currently in the process of divesting from its
exploration licences in Papua New Guinea.
3. Financial performance
Weaker rand increases inflationary cost pressures
A 13% weaker average rand/US dollar exchange rate
R8,64/US$ at 31 March 2013) negatively impacted cash
fixed costs for the nine months ended 31 March 2013. Cash
fixed costs, excluding once-off, growth costs and the
impact of exchange rates, have increased above inflation,
resulting primarily from increased labour, electricity
and maintenance costs. We continue to contain the impact
of electricity cost increases, through the utilisation of
our own electricity generation capacity. In respect of
labour costs, we are entering into wage negotiations over
the coming months with our represented unions.
In order to identify opportunities where we can reduce
and contain our cost base on a sustainable basis, a
project was launched to significantly reduce the future
cost structures of the Sasol group. We are finalising our
analysis of the cost drivers in the group. This analysis
will be used in conjunction with procurement and
maintenance cost reduction strategies, underpinned by a
drive for shared services. Further information on our
progress on this project will be provided at the year-end
results announcement.
Strong cash generation continues to fund growth
Free cash flow for the nine months to 31 March 2013,
increased by 18% compared to the prior year comparable
period, allowing the group to maintain its strong balance
sheet. Our healthy cash generating ability has allowed us
to successfully sustain our current operations and fund
our approved growth aspirations, while still delivering
attractive returns to our shareholders.
4. Projects update
US integrated ethane cracker complex and GTL complex
We are executing the front-end engineering and design
(FEED) phase of the integrated, world-scale ethane
cracker and downstream derivatives units, and will
commence with FEED for the GTL and chemicals value-adds
facility at Lake Charles in Louisiana during the second
half of the 2013 calendar year.
The ethane cracker (estimated to cost between US$5
billion and US$7 billion) will produce 1,5 million tons
of ethylene that will be used to produce a range of
ethylene derivatives. The main technologies for the
ethane cracker and derivative units have been selected
and we have placed orders for critical long-lead
equipment. We expect beneficial operation for the ethane
cracker to be achieved during the 2017 calendar year,
with the final investment decision (FID) to be taken
during the 2014 calendar year.
The ethylene produced will be consumed in the production
of the following derivative products:
* ethoxylates, used in the production of surfactants;
* a range of alcohols, used in surfactants as well as a
wide range of specialty applications;
* octene, used as a co-monomer in polyethylene; and
* polyethylene, for film and other markets.
The US GTL facility (estimated to cost between US$11
billion and US$14 billion) will produce at least a
nominal 96 000 barrels per day (bbl/d) of product, with
the potential to produce up to 10% more. The US GTL
project will be delivered in two phases after the ethane
cracker, with each phase comprising at least 48 000
bbl/d. The final investment decision for the US GTL
project is expected to be taken within 18 to 24 months
after that of the US ethane cracker.
Around 70% of the production of the GTL facility will be
low-sulphur diesel, with naphtha and liquid petroleum gas
(LPG) as co-products, and 30% of the production will be
chemical products, including paraffin feedstock for
linear alkyl benzene (LAB), wax products and synthetic
base oils.
We have submitted the filings for the key environmental
permits, and have regular interaction with the
authorities and other stakeholders to monitor the
process. The outcome of the permit applications are
expected later towards the end of the FEED process. Our
experienced, well-resourced integrated owner team and
independent, reputable industry partners will continue to
assess ways in which to manage and mitigate potential
risks associated with executing these projects.
For further information regarding these projects, refer
to the information related to our investor strategy days
on our website www.sasol.com.
Uzbekistan GTL
Our Uzbekistan GTL FEED activities are progressing well
and are expected to be completed during the second half
of the 2013 calendar year. An investment decision for
this project is, amongst others, dependent on appropriate
project financing.
As a result of the magnitude of Sasol’s growth portfolio,
as well as significant sustenance capital required for
our South African operations, Sasol regularly reviews the
projects in its project pipeline. As a result of these
reviews, the Sasol Limited Board, approved that Sasol
decreases its shareholding in the Uzbekistan GTL project
from 44,5% to 25,5% at the end of the FEED phase.
Different shareholding options are currently being
evaluated.
The Uzbekistan GTL project remains an important project
in Sasol’s GTL growth portfolio and the business case for
the project remains robust.
Mining replacement projects
The development of the Impumelelo and Shondoni
Collieries, which are part of Sasol Mining’s R14 billion
mine replacement programme, is progressing. The issue of
certain water licences by the relevant authorities has
caused some delay; however, both the Impumelelo and
Shondoni Collieries are still expected to be completed
within budget and on time, reaching beneficial operation
during the fourth quarter of the 2014 and second half of
the 2015 calendar years, respectively.
FT wax expansion project
Construction on the FT wax expansion project facility in
Sasolburg, South Africa, continues to progress. The
commissioning of the new Slurry Bed Reactor, which is key
equipment for the capacity expansion, is expected to take
place at the end of March 2014, three months later than
previously announced. Phase 2 of the project will be
impacted by the delay of phase 1 and commissioning of
phase 2’s key equipment (second Slurry Bed Reactor) is
expected to take place in August 2016. In our half year-
end results announcements, we indicated that we were
assessing the costs of this project. The total project
cost of both phases 1 and 2 has increased from the
original approved budget by 40-45% to an estimated total
cost of R11,9 billion. The total project cost comprises
both phase 1 and phase 2 costs, estimated at R9,0 billion
and R2,9 billion, respectively. The increased cost is
primarily related to the brownfield nature of the
project, construction delays and poor labour
productivity, which have been exacerbated by recent
strike action and civil unrest. The economics of the
project have been negatively impacted by the
aforementioned schedule delays, as well as the volatile
macroeconomic environment. As a consequence, we are
reassessing the economics of the project. Every effort is
being taken by the project team to monitor and mitigate
these risks. However, it should be noted that this
project is a highly-complex brownfield mega-project,
being executed in a labour constrained environment, where
severe labour unrest and low productivity are being
experienced. Accordingly, some uncertainty on the
schedule and costs remain and there is a risk of
potential impairment. Further announcements will be made
once additional information is available in this regard.
Sasol Synfuels growth programme
The Sasol Synfuels growth programme is nearing
completion, with the first pair of the GHHERs to be
operational during June 2013. This will contribute to
increased site flexibility and volume growth, where after
the timing of the installation of the second set of
GHHERs will be finalised. Beneficial operation of the
entire programme is expected to be reached in the second
half of the 2014 calendar year.
Sustainability initiatives
During the period, through Sasol New Energy (SNE), we
advanced the development of our US$246 million additional
140 megawatt gas-fired electricity generation plant in
Mozambique, in partnership with the country’s state-owned
power utility Electricidade de Moçambique (EDM) at
Ressano Garcia. EDM will be the sole-offtaker of the
electricity under a power purchase agreement.
Construction (ground works) has commenced on site and
beneficial operation is expected during the first half of
the 2014 calendar year.
SNE’s external water conservation partnerships have
started to yield results, with the first water savings of
a cumulative R4,5 million being realised through the
repair of leaking plumbing in 50 000 houses in Sebokeng
and Evaton, in the Sasolburg region. The project will now
start to become self-funded, demonstrating the
sustainability of the “ring-fenced savings” funding model
for the project. The concept of water off-setting has
been positively received by the Parliamentary Portfolio
Committee on Water and Environmental Affairs, and further
development of water off-setting policy by the Department
of Water Affairs is being supported by SNE.
Clean Fuels 2 update
The high level Clean Fuels 2 (CF2) specifications,
aligned with Euro V emission standards, were published in
the South African Government Gazette on 1 June 2012 and
are in line with expectations. Our latest estimates on
the capital expenditure to comply with the core
specifications, octane and volume recovery, is
approximately R11,7 billion, attributable to both our
share in the Natref joint venture and Sasol Synfuels.
These estimates are subject to change, based on the
finalisation of feasibility studies being carried out in
this regard.
Sasol was encouraged by the South African Finance
Minister’s budget announcement on 27 February 2013, which
indicated that support mechanisms will be introduced to
assist the local refineries with the introduction of
environmentally friendly fuels. Details of these
mechanisms are expected by the end of June 2013. 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.
5. Update on strategic issues
Credit rating
Our foreign currency credit rating published by Standard
& Poor’s (S&P) on 16 October 2012, is BBB/Negative/A-2,
and S&P’s local currency rating for the sovereign (South
Africa) is A-/Negative/A-2. Our foreign currency credit
rating published by Moody's Investors Service on 29 March
2013, is Baa1/stable/P-2, and our national scale issuer
rating is Aa3.za/P-1.za.
The credit ratings reflect our local and international
activities, diversified along the integrated value chain,
as well as our current strong financial risk profile and
prudent financial policies.
Gearing
Our gearing is currently close to zero. However, as we
continue to advance our North American growth strategy,
which constitutes a significant portion of group capital
investment over the next 10 years, gearing is likely to
reach our targeted range by the 2016 financial year. We
are confident that we will be able to manage the long-
term gearing of the group within our targeted range,
without selling assets and after taking into account the
phasing of our US GTL project, our progressive dividend
policy as well as allowing some flexibility for a buffer
against volatility in commodity prices.
Progressive dividend policy
We remain committed to our progressive dividend policy.
Despite a 13% decline in the interim earnings per share,
we maintained the interim dividend in line with the prior
year comparable period. This supports a minimum total
dividend in line with our 2012 full year dividend,
barring any material and unforeseen events or significant
fluctuations in the global macroeconomic environment.
Polymers competition hearing
As reported previously, 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 continue to dispute the Commission’s
allegations. In 2010, the matter was referred by the
Commission to the South African Competition Tribunal (the
Tribunal). The trial was originally set down to be heard
before the Tribunal from 16 July 2012, however, as a
result of an application brought by the Commission to
postpone the hearing, the trial was heard before the
Tribunal during 13 May 2013 through to 7 June 2013. We
await the outcome of the hearing.
Liquid fuels competition enquiry
The Commission referred its diesel fuel market
investigation to the Tribunal at the end of October 2012.
We began engaging with the Commission in 2008, as part of
our group-wide competition law compliance review, which
preceded the Commission’s investigation into the liquid
fuels sector. At the time, we found no evidence to
support the Commission’s concerns of possible anti-
competitive conduct in the diesel market.
We have reviewed the referral and do not agree with the
Commission’s allegations. We are, accordingly, defending
the matter.
Our activities in Iran
The divestiture of our share in ASPC continues to
progress well, albeit slower than initially anticipated.
We concluded a memorandum of understanding with an
interested party regarding the disposal of ASPC. With
effect from 28 February 2013, the investment is
classified as a disposal group held-for-sale. As at the
date of this update, we are finalising closing
activities.
Further losses relating to the foreign currency
translation reserve of approximately US$100 million will
be recognised in income once we finally divest from ASPC.
The devaluation of the Iranian currency may further
negatively impact our earnings. There may be further
impairments linked to the fair value of the ASPC asset as
a result of the deteriorating Iranian environment and the
accounting requirement to recognise operating profits for
the period since October 2012, which may not be
recuperated through the divestiture process and disposal
value.
NERSA gas tariffs
The Gas Act requires that the National Electricity
Regulator of South Africa (NERSA) approves maximum prices
of the gas molecules and the tariffs for use of gas
infrastructure. In the case of Sasol Gas, such approval
is required for gas prices and tariffs applicable from 26
March 2014.
The prices are intended to set a ceiling above which
traders, such as Sasol Gas, cannot price. This is the
first step towards standardising prices, as required by
the Gas Act. In line with the stipulated NERSA process,
in December 2012, Sasol Gas made its submission to the
regulator, to apply for the overall maximum price, as
well as the class maximum prices. As required, Sasol Gas
also applied for the approval of its transmission tariffs
and further notified NERSA of its intended distribution
tariffs, which are not regulated.
Under the current pricing system, customer’s prices are
charged on a bundled basis, for the gas molecule and the
use of the infrastructure, based on their energy
alternative. Under the new mechanism, the total charge
will be unbundled and there will be standard prices and
tariffs. Whereas the previous pricing regime resulted in
a range of prices, within the same customer classes, the
main effect of the new pricing regime will be to
standardise prices so that customers with the same off-
take volumes will pay the same price. The suite of
tariffs that a customer will pay will depend on a
customer’s geographic location and whether a customer is
supplied off a transmission or distribution pipeline.
The new prices we will charge will be below the NERSA set
overall and class maximum prices. Sasol in its maximum
price application also applied for a mechanism to
transition customers to the new pricing system. This was
approved by NERSA with some amendments.
Given that NERSA has recently published the reasons for
its decision, Sasol is still in the process of finalising
its standard prices. These actual prices are part of the
commercial engagements that Sasol will undertake with its
customers. All customers will have to migrate to the
standard prices, and will be required to conclude new
supply contracts with Sasol.
Carbon tax
Sasol takes note of the release of the second discussion
paper on carbon tax issued by the South African National
Treasury in May 2013. Sasol welcomes the opportunity for
further comment and engagement with government on the
matter. We are currently reviewing the proposals made and
will comment in due course.
6. Guidance for the full year
We expect the global environment and South African
economy to maintain a modest recovery into the remainder
of the 2013 financial year. However, the continued
weakening demand in Europe and lower growth in emerging
markets and the US remain a concern. We anticipate that
crude oil prices will remain stable over the near term.
However, product prices are expected to experience
continued volatility. Uncertainty remains over the
resolution of the European debt crisis and concerns over
the US debt ceiling.
We expect an overall solid production performance for the
2013 financial year with our production guidance
remaining unchanged:
* Sasol Synfuels volume guidance based on current
performance is anticipated to be at the top end of the
previously guided range of 7,2 to 7,4 million tons for
the full year;
* The full year average utilisation rate at ORYX GTL in
Qatar, taking into account the statutory shutdown, is
expected to be approximately 80% of nameplate capacity;
* Full year production at ASPC in Iran will be
approximately 80% of nameplate capacity; and
* Our shale gas venture in Canada will continue to show
increased production compared to the prior year due to
the new wells coming on stream. At present we are
stabilising our production, as we have slowed down the
drilling of additional wells.
We remain on track to deliver on our expectations for
improved operational performance. As costs are incurred
to improve plant stability and the weaker rand continues
to exert pressure on our South African businesses, we
expect that our normalised fixed costs will increase
above the South African producers’ price index (PPI)
inflation. Cost reduction is a specific target within our
short-term incentive scheme and, accordingly, management
continues to focus on controllable cost elements. The
macroeconomic conditions continue to be volatile,
impacting our assumptions in respect of a stable crude
oil price and volatile product prices, stronger refining
margins as well as the weaker rand/US dollar exchange
rate. We continue to focus on factors within our control:
volume growth, margin improvement and cost reduction.
An update on earnings guidance will be provided once we
have a reasonable degree of certainty on the full year
results for the 2013 financial year, taking into account
any adjustments arising from our year-end reporting
closure process, as well as remeasurement effects. The
potential impairment of our investment in ASPC, as well
as other possible impairments are not expected to have an
impact on headline earnings per share. The devaluation of
the Iranian currency may further negatively impact our
earnings.
The forecast financial information appearing in this
update is the responsibility of the directors and has not
been reviewed or reported on by Sasol’s external
auditors. We will release Sasol’s full-year results on
Monday, 9 September 2013.
7. Other matters
Income statement presentation
Sasol will be changing the presentation of its income
statement for the 2013 financial year. In terms of
International Financial Reporting Standards (IFRS), the
income statement can be presented by nature or by
function. Sasol currently presents its income statement
by function. Sasol has elected to change its income
statement presentation to reflect how we effectively
manage our business as well as align to peers.
Accordingly, Sasol will be reporting its income statement
by nature with effect from the 2013 financial year.
The income statement, and appropriate notes, in respect
of prior reporting periods, will be restated. The periods
affected are as follows:
* 30 June 2012
* 30 June 2011
* 31 December 2012
* 31 December 2011
Change in independent auditors
In the spirit of good corporate governance, we have
decided to rotate our independent auditor, KPMG Inc.
after more than 25 years of satisfactory service as
auditors, at the end of the 2013 financial year. The
replacement independent auditor will be appointed for the
2014 financial year, commencing 1 July 2013. On 12
February 2013, the Sasol Limited Audit Committee selected
PriceWaterhouseCoopers as the new independent auditor,
subject to approval by the Annual General Meeting on
22 November 2013.
Retirement of Senior Group Executive
Lean Strauss, Senior Group Executive responsible for
international energy, new business development and
technology, announced that he would be retiring from
Sasol at the end of September 2013. During Lean’s 31
years at Sasol, he has made a remarkable contribution to
the growth and development of the group. He will remain
available to the group on a consultancy basis.
8. Other events 2013
9 September Full-year 2013 financial results release
9 September Dividend declaration
14 October Dividend payment (Sasol ordinary shares)
25 October Dividend payment (ADRs)
22 November Sasol Limited Annual General Meeting
25 November CFO letter
9. Investor Relations contacts
Please feel free to contact us as follows:
investor.relations@sasol.com
+27 11 441 3113
The Investor Relations team:
* Raj Naidu Executive: Investor Relations and
Shareholder Value Management (Analyst contact)
* Sam Barnfather General Manager: Investor Relations
Operations (Financial contact)
* Amelia van den Berg (Financial contact)
Sponsor: Deutsche Securities (SA) Proprietary Limited
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
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 12
October 2012 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 ended 30
June. Any reference to a calendar year is prefaced by the
word “calendar”.
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