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”)
9 June 2014
SASOL CHIEF FINANCIAL OFFICER UPDATE
Dear stakeholder,
Sasol delivered a strong operational performance over the
first nine months of the 2014 financial year,
notwithstanding a still mixed macroeconomic environment. In
the last quarter, oil prices remained flat, compared to both
the first six months of the current financial year, as well
as the comparable period in the previous year, while Henry
Hub natural gas prices have increased slightly. The exchange
rate depreciated by 20% compared to the comparable period in
the previous financial year. Chemical markets continue to
improve, with most chemical commodity prices increasing.
We continue to advance our various growth projects, which
will enable us to produce increased volumes over the near to
medium term. Cash flow generation remains strong,
maintaining our ungeared position and providing us with a
solid platform from which to fund various growth
opportunities.
Delivering on our business performance enhancement programme
continues to be a key focus area for Sasol. We are on track
to implement our new operating model, including the
associated management structures and internal changes, on 1
July 2014. This will enable a simplified, cost-effective,
efficient and competitive Sasol, which will create
significant long-term shareholder value. While we are
implementing these changes, we remain committed to ensuring
safe, efficient and stable operations and full compliance.
As indicated previously, our new operating model will result
in changes to our statutory reporting from the 2015
financial year. In turn, we are also streamlining our
internal reporting processes to become more effective and
efficient, and we are thus reviewing the content and
frequency of the information we disclose to the market, such
as this CFO update. We will communicate more on this later
this year.
Best regards,
Paul Victor
Acting Chief Financial Officer
Sasol Limited
1. Macroeconomic environment
March 2014 March 2013
?%
YTD YTD
Macroeconomic
indicators
Average rand/US$ 10,34 8,64 20%
Brent crude oil
(US$/bbl) 109,30 110,71 (1%)
Henry Hub gas price
(US$/mmbtu) 4,24 3,25 30%
Product prices
SA fuel price
(US$/bbl) 123 129 (5%)
Ethylene (US$/ton) 1 639 1 611 2%
Propylene (US$/ton) 1 499 1 414 6%
Polymers basket
(US$/ton) 1 371 1 247 10%
Solvents basket
(US$/ton) 1 202 1 240 (3%)
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.
Global economic growth continued at a moderate pace in the
third quarter of our current financial year, although the
performance of major economies was mixed. US economic growth
contracted sharply, mainly due to adverse weather
conditions, while Chinese economic growth eased. In Europe,
business and consumer confidence showed further improvement.
South Africa’s economic environment remained challenging due
to strikes in the platinum sector, electricity supply
constraints, low levels of business and consumer confidence,
and strained household finances, with GDP contracting in the
quarter. Domestic inflationary pressures accelerated, with
headline consumer price inflation rising to 5,9% in the
first quarter of the 2014 calendar year from 5,4% in the
preceding quarter, while producer price inflation rose to
7,6% from 6,2% over the same period.
2. Operational update
March 2014 March 2013
?%
YTD YTD
Total production
Sasol Mining (mton) 29,9 29,5 1%
Sasol Gas (mGJ) 130 119 9%
Sasol Synfuels (mton) 5,6 5,5 2%
Sasol Oil (m3) 6 271 5 706 10%
ORYX GTL* (mbbl) 4,1 3,3 24%
Canada shale gas asset*
(mboe) 2,9 3,0 (3%)
Sasol Petroleum
International group
(excluding Canada) (mboe)* 14,8 13,1 13%
Sasol O&S (kton) 1 742 1 466 19%
* Sasol’s share of production
Sasol Mining’s year-to-date production volumes increased by
1% compared to the prior year comparable period. This was
achieved through increased production at the Twistdraai
complex. The overall higher production and sales volumes to
the export market were also boosted by higher export rand
prices. Mining costs continue to remain under pressure due
to higher labour and maintenance costs.
Sasol Synfuels delivered better than expected production
volumes for the period of 5 654 kilotons (kton). This
represents an increase of 2% on the prior period, despite
the east factory total and phase shutdown in September 2013.
Normalised Sasol Synfuels volumes increased by 4% on a
comparable basis. Cash unit costs increased by 7,3% compared
to the previous comparable period, which is 0,6% above the
producer price index (PPI). This is mainly due to higher
coal and gas prices which are mostly internal to the group.
Sasol Oil’s year-to-date production volumes were 10% higher
than the prior year comparable period. This is mainly due to
an increase in production volumes at the Natref refinery,
given the postponement of the planned shutdown at Natref to
the last quarter of the 2014 financial year.
Our ORYX GTL joint venture in Qatar produced
4,1 million barrels (mbbl) (Sasol’s 49% share) over the nine
month period. The increased production compared to the prior
period was largely due to plant improvements made during the
shutdown in the first quarter of the 2013 calendar year. The
average utilisation rate for the nine month period was
93,5%.
In Nigeria, commissioning of the Escravos GTL project is
progressing, with beneficial operation of the first train
expected to be achieved during the first half of the 2014
calendar year.
The performance of our Sasol Olefins & Surfactants’ (Sasol
O&S) business for the period continues to be supported by
favourable feedstock prices in our US operations. Our
European-based businesses achieved improved results, despite
increased pressure on profits due to weak demand and high
feedstock prices. Total production and sales volumes,
inclusive of the co-monomers product portfolio, were 19% and
17% higher, respectively, compared to the prior year
comparable period. Overall gross margin for the period
exceeded the prior year comparable period. In February 2014,
we successfully completed commissioning of the
tetramerisation project in Lake Charles, Louisiana, and
expect the plant to be fully operational in the second half
of the 2014 calendar year.
Our Sasol Polymers business is experiencing improved gross
margins due to increased selling prices on the back of
higher dollar-based prices and a weaker exchange rate, as
well as the benefits of improved plant efficiencies.
Production volumes were 7% higher than the prior comparable
period, due to improved efficiencies and contributions from
the new Ethylene Purification Unit 5 (EPU5) plant. Sales
volumes were 6% higher than the prior year comparable period
and are expected to be 10% higher for the full 2014
financial year. EPU5 contributed to the C2 value chain
during the year by reducing ethane flaring, and we are
looking forward to realising the full benefits of this
project in the 2015 financial year. The C3 stabilisation
project is being commissioned, and beneficial operation is
anticipated early in the second half of the 2014 calendar
year. The project is expected to be completed within budget.
Sasol Solvents’ business, exclusive of the co-monomers
portfolio, delivered a strong performance for the nine
months compared to the corresponding period in the prior
year. This was attributable to higher US dollar prices,
improved sales volumes and a weaker rand/dollar exchange
rate, all benefiting the South African product portfolio.
The disposal of non-core Solvents Germany assets to INEOS
has been finalised, and is effective from 31 May. As
previously communicated, it is highly probable that a
capital loss on disposal will be realised by year-end.
In our other chemical businesses, sales volumes at Sasol Wax
were 0,5% higher than the prior year comparable period. In
addition, the production of hard waxes has improved,
providing a platform from which to expand the business as
the global economy recovers.
In contrast, challenging market conditions continued to
negatively impact Sasol Nitro’s performance for the period.
Sales and production volumes in the explosives business were
lower than the prior period, mainly due to industrial action
in the platinum mining sector.
At Sasol Petroleum International (SPI), production volumes
from our combined assets in Mozambique, Gabon and Canada
grew by 10% compared to the prior period.
The feasibility phase of the Production Sharing Agreement
(PSA) development project in Mozambique is nearing
completion. The full field development plan for the PSA is
on track to be submitted to the Mozambican authorities by
the February 2015 deadline.
In Gabon, maturation and development of additional proven
oil reserves, to maintain and potentially boost production,
progressed. This was enabled by the development of the Etame
expansion project and the South East Etame and North
Tchibala projects. Both developments remain on track for
beneficial operation in the 2015 calendar year.
Our Canadian shale gas assets remain under pressure, given
continued low natural gas prices. Accordingly, we are
prioritising the de-risking of the asset by drilling a
number of key appraisal wells. During 2014 we have seen a
sustained reduction in drilling and completion costs.
Notwithstanding, well productivity and overall production
levels remain challenged, due to relatively low drilling
activity levels.
One of the primary pillars of Sasol’s overarching corporate
strategy is to grow its upstream business, with short- and
long-term focus areas. Australia, being a focus area for the
long term, presented us with an opportunity to farm-in to an
early-stage exploration position in the Beetaloo basin,
which is highly prospective for shale gas and associated
liquids. Accordingly, SPI and Origin Energy Resources Ltd.
(Origin) signed a conditional farm-in agreement with Falcon
Oil & Gas Australia Limited to each acquire a 35% interest
in three onshore exploration permits in Australia’s Northern
Territory. The three permits, located about 500 kilometres
south-east of Darwin, cover an area of more than 18 500 km2
within the Beetaloo Basin. Origin will assume operatorship
of the three permits.
We completed an early stage coal-bed methane (CBM)
exploration programme in Botswana in March 2013. Following a
comprehensive technical evaluation, we decided to withdraw
from the CBM prospecting licenses. We will, however,
continue to monitor the Southern African CBM landscape, as
well as that for both conventional and unconventional gas
reserves. In parallel, we are evaluating the potential for
further gas monetisation opportunities in the region, such
as gas-to-liquids (GTL) and power generation.
Through Sasol New Energy, we continued to advance the
development of the US$246 million 140 megawatt gas-fired
power plant at Ressano Garcia, Mozambique, in partnership
with the country’s state-owned power utility, Electricidade
de Moçambique. Beneficial operation remains on track for
early in the second half of the 2014 calendar year.
3. Projects update
South Africa
Mine replacement projects
The development of the Impumelelo and Shondoni collieries,
which are part of Sasol Mining’s R14 billion mine
replacement programme, remain on track. It is anticipated
that the projects will be completed within budget and on
schedule, reaching beneficial operation in the first half
and second half of the 2015 calendar year, respectively. An
external funding facility of R2,5 billion for these projects
has been secured, and the first drawdowns have taken place.
FT wax expansion project
Construction on the FT wax expansion facility in Sasolburg,
South Africa, continues to progress. The commissioning of
the new slurry bed reactor, which is critically important
for the capacity expansion, is expected during the fourth
quarter of the 2014 calendar year. Commissioning of Phase 2
of the project is on track to take place during the second
half of the 2016 calendar year. The total project cost for
both phases remains unchanged at R13,6 billion.
Sasol Synfuels growth programme
The Sasol Synfuels growth programme is nearing completion.
The beneficial operation of the entire programme is still
expected to be reached at the end of the 2014 calendar year.
Following the successful commissioning of the gas-heated
heat exchange reformers (GHHER) East plant last year, GHHER
West is being installed and beneficial operation is expected
towards the end of the third quarter of the 2014 calendar
year. The final cold separation modifications will be
completed during the scheduled Synfuels phase shutdown in
September.
Synfuels environmental initiatives
The replacement of tar tanks and separators, the volatile
organic compound (VOC) abatement project, and the coal tar
filtration (CTF) east projects remain under schedule and
cost pressure. Beneficial operation for the replacement of
tar tanks and separators and the VOC abatement project is
expected in the second half of the 2015 calendar year, and
the middle of the 2016 calendar year, respectively. The CTF
east project is expected to reach beneficial operation in
the first half of the 2017 calendar year. The total approved
cost of these three projects is estimated at R7,5 billion.
Clean Fuels 2 update
The South African Petroleum Industry Association confirmed
that the South African government has communicated a
postponement to the 1 July 2017 introduction date of new
cleaner fuels standards. A new target date is awaited.
Furthermore, market trends are indicating upward pressure on
octane demand. Delays in the clean fuels project schedule
and a potential project scope change to allow an increased
octane capacity will result in higher capital requirements.
Studies are in progress to quantify the impact and to
determine an appropriate way forward.
Mozambique
Mozambique to Secunda pipeline capacity expansion
The construction of a R2 billion loopline on the Mozambique
to Secunda gas pipeline is progressing well. Beneficial
operation is expected during the second half of the 2014
calendar year and the project is expected to be completed
within budget.
United States
US ethane cracker and derivatives complex
We continue to make progress on the front-end engineering
and design (FEED) work and are currently finalising the
capital cost estimate and associated contracting strategy
for our world-scale 1,5 million tons per annum ethane
cracker and derivatives complex in Westlake, Louisiana. This
investment will establish our Lake Charles Chemical Complex
as an integrated multi-asset site that will also facilitate
and enable future growth in the region. We have secured
sufficient ethane transportation capacity on various
pipeline systems as well as term-based ethane supply
agreements. The air and water permits for the ethane cracker
and derivatives complex and the US gas-to-liquids (GTL) and
chemical value adds facility have been issued. Provided the
wetlands permit is received in a timely manner, all
commercial and engineering construction contracts are
substantially completed and sufficient funding has been
raised, we anticipate taking the final investment decision
for the ethane cracker and derivatives complex later this
year.
High-density polyethylene 50/50 joint venture with INEOS
Sasol and INEOS have taken the final investment decision on
a world-scale 470 kilotons per annum bimodal high density
polyethylene (HDPE) plant to be located at INEOS’ existing
Battleground Manufacturing Complex in La Porte, Texas. The
plant will be debt financed and the investment decision is
therefore conditional on achieving financial close. The
plant, which will use INEOS’ Innovene™ S process, is
expected to reach beneficial operation towards the end of
calendar year 2016. The ethylene required for the production
of the HDPE will be supplied by INEOS and Sasol in
proportion to their respective shareholding. Sasol will
initially source the ethylene from its existing Lake Charles
operations and, to the extent necessary, from the merchant
market. Once the new ethane cracker is operational, the
ethylene from the existing Lake Charles operations will be
supplemented by ethylene from the new ethane cracker. INEOS
is a leading producer of ethylene from its olefins units at
Chocolate Bayou. All relevant permits have been obtained.
US GTL complex
Working alongside Technip, we are progressing with the FEED
phase of our planned GTL and chemicals value add facility.
This facility, which is to be located adjacent to the ethane
cracker and downstream derivatives complex in Westlake,
Louisiana, will produce at least a nominal 96 000 barrels
per day of product, with the potential to produce up to 10%
more. Sasol has selected Air Products and Chemicals Inc., a
leading industrial gas company, to build, own and operate a
world-scale air separation plant for the long-term supply of
oxygen, nitrogen, and compressed air to the US GTL facility,
subject to the final investment decision being taken on the
project. The final investment decision on the GTL facility
is expected to follow within 24 months of that of the US
ethane cracker and derivatives complex, taking into
consideration progress made with the execution of the ethane
cracker and derivatives complex, prevailing market
conditions as well as the impact on Sasol’s gearing and
dividend.
Uzbekistan
Uzbekistan GTL
We are in an extended FEED phase of our Uzbekistan GTL
project. The majority of the technical FEED activities have
been completed. The final investment decision for this
project is, amongst others, dependent on securing
appropriate project funding, and confirming a suitable
partner to take up 19% of our current stake in the venture.
We anticipate a final decision during the second half of the
2014 calendar year.
4. Business performance enhancement programme update
We remain on track to implement our new operating model for
Sasol on 1 July 2014. Thereafter, Sasol will be organised
into two upstream business units, three regional operating
hubs, and four customer-facing strategic business units,
supported by fit-for-purpose functions. The reorganisation
of our executive, senior and middle management structures to
support the new operating platform is underway. The top
three management layers, which include the group executive
committee, are already finalised, and the process to confirm
the appointments of the organisation’s fourth decision-
making layer is on track for completion during June. In
parallel, we are finalising a streamlined and robust
internal governance and decision-making framework, which
will also be effective from 1 July 2014.
Our estimates for the savings already achieved in the course
of the current financial year are R205 million. Since many
of these savings were realised during the second half of the
financial year, the savings are equivalent to R560 million
for a full year. The implementation costs for the business
performance enhancement programme for the current financial
year are expected to be around R1,1 billion.
We remain confident that this programme will generate
sustainable savings of at least R3 billion (in real terms)
annually, with the full benefit being evident from the 2016
financial year. Based on our ongoing analysis, we are
encouraged that we will be in a position to communicate
upside potential to this savings target in due course.
5. Other updates
Credit rating
Based on our interactions with Standard and Poor’s (S&P),
and after having performed a sovereign stress test, S&P
revised its outlook on Sasol from negative to stable on 15
May 2014. Our foreign currency credit rating by S&P is
BBB/Stable/A-2 (previously BBB/Negative/A-2).
Moody’s Investors Service (Moody’s) published their latest
credit opinion on 31 March 2014. Our foreign currency credit
rating is Baa1/stable/P-2 and our national scale issuer
rating is Aa3.za/P-1.za.
The credit ratings reflect increased confidence in our local
and international activities, diversified along the
integrated value chain, as well as our continued strong
financial risk profile and prudent financial policies.
Competition matters
At the end of 2007, the South African Competition Commission
(“Commission”) initiated an investigation into the country’s
polymers industry. The investigation included allegations of
excessive pricing in the South African monomer and polymer
industries. The Commission’s complaint was referred to the
Competition Tribunal (“Tribunal”) in 2010, contending that
Sasol Chemical Industries Limited, (currently Sasol Chemical
Industries (Pty) Limited), through its Sasol Polymers
division (“SCI”), had, between January 2004 and December
2007, charged excessive prices for propylene and
polypropylene supplied in South Africa. The matter was
ultimately heard by the Tribunal in 2013.
On 5 June 2014, the Tribunal released its decision in
respect of SCI’s pricing of propylene and polypropylene. In
its decision, the Tribunal found against SCI in relation to
its pricing of both products for the period in question. In
respect of purified propylene, the Tribunal imposed an
administrative penalty of R205,2 million. In respect of
polypropylene, the Tribunal imposed a penalty of R328,8
million. In addition, the Tribunal ordered a revised future
pricing of propylene and polypropylene.
Sasol is currently reviewing the Tribunal’s decision and
considering the options available to it, including engaging
with the relevant stakeholders on the way forward.
As previously reported, the Commission has, since 2008, been
conducting an investigation into the South African petroleum
industry. We continue to cooperate with the Commission in
this investigation.
Inzalo refinancing
The partial refinancing of the Sasol Inzalo preference share
debt is being agreed with the funders and will be
implemented once finalised and all conditions precedent have
been met. This will result in lower interest rates on a
portion of the debt and thus lower debt payments, thereby
creating additional value for the Sasol Inzalo BEE scheme
and its shareholders.
6. Financial update
We expect global economic growth to continue at a moderate
pace for the remainder of 2014, with South African growth
prospects remaining muted. Macroeconomic conditions remain
volatile, impacting on our assumptions of stable crude oil
prices in the near term, slightly improved natural gas
prices, a moderate recovery in product prices and a weaker
rand/US dollar exchange rate. The rand/US dollar exchange
rate remains one of the biggest external factors impacting
our profitability. We continue to focus on factors within
our control - volume growth, margin improvement and cost
reductions.
We expect an overall strong production performance for the
2014 financial year and remain on track to deliver on our
expectations for further enhanced operational stability. Our
production guidance is as follows:
- Sasol Synfuels’ volume guidance, based on current
performance, is anticipated to be at the top end of the
previously guided range of 7,3 to 7,5 million tons for
the full year;
- The full year average utilisation rate at ORYX GTL in
Qatar is expected to be more than 94% of nameplate
capacity; and
- Our shale gas venture in Canada will maintain stable
production compared to the prior year. At present, we
are optimising drilling activities, as ramp-up remains
dependent on sustained natural gas price increases.
We continue to make good progress on our business
performance enhancement programme to ensure that Sasol
remains competitive over the long term. 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
slightly above indicative South African PPI inflation. Cost
reduction is a specific target within our short-term
incentive scheme and, accordingly, we remain focused on
controllable cost elements.
Earnings guidance will be provided once we have a reasonable
degree of certainty on the full year results for the 2014
financial year, taking into account any adjustments arising
from our financial year-end reporting closure process, as
well as remeasurement effects, including that relating to
the disposal of our Solvents Germany business.
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 aim
to publish Sasol’s full-year results for the 2014 financial
year on 8 September 2014.
9 June 2014, Johannesburg
7. Contact details
investor.relations@sasol.com +27 11 441 3113
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 9 October
2013 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”.
Date: 09/06/2014 02:10:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
