NORMALISED CHEMICALS SALES VOLUMES UP-
- Solid operational performance across most of the value chain
- Record production volumes at Secunda Synfuels Operations
- Normalised sales volumes
- Performance Chemicals up 1,8%, Base Chemicals down 2,6%
- Liquid fuels remained flat, 2% up on market guidance
- Business Performance Enhancement Programme delivered
- Sustainable actual cost savings of R4,5bn
- Updated target exit run rate of R5,4bn by 2018
- Response Plan cash savings exceeding expectations
- R28bn cash savings delivered for the year
- R12bn above 2016 target
- Updated sustainable savings target to R2,5bn by 2019, up R1bn
- Lake Charles Chemicals Project 50% complete
- Addressing challenges with projection execution
- Significantly sharpened focus on cost and schedule delivery, following the increase in project cost to US$11bn
- Significantly sharpened focus on cost and schedule delivery, following the increase in project cost to US$11bn
- Headline earnings per share down 17% to R41,40, despite an average 25% decline in Rand oil prices
- Safety Recordable Case Rate (RCR), excluding illnesses, improved to 0,29, regrettably two fatalities*
- Normalised cash fixed costs down 8,1% in real terms
- Liquid fuels BEE partner, Tshwarisano, investment now fully unencumbered
- Direct and indirect taxes paid to South African Government R36,8 billion
Johannesburg, South Africa – Sasol today released its full year financial results for the year ended 30 June 2016. Earnings attributable to shareholders decreased by 55% to R13,2 billion from R29,7 billion in the prior year. Headline earnings per share (HEPS) decreased by 17% to R41,40 and earnings per share (EPS) decreased by 56% to R21,66 compared to the prior year. The Sasol Limited Board has declared a final gross dividend of R9,10 per share (21% lower compared to the prior year).
“We are excited to be taking over as Sasol’s Joint Presidents and Chief Executive Officers. We have been working together over the last six months to clearly define how we will lead Sasol, address the challenges the company is facing and pursue the exciting opportunities ahead.
Sasol’s global operations continue to perform well, with our Secunda Operations reporting record production volumes. Our cost reduction and cash savings initiatives are exceeding their targets, which places us on a sound footing as we gear up our balance sheet to complete the world-scale, company-changing investment in Louisiana in the US,” said Bongani Nqwababa, Joint President and Chief Executive Officer, Sasol Limited.
“Although the capital expenditure for our Lake Charles Chemicals Project has increased, we remain confident that the fundamental drivers for this investment are sound. The cost and schedule review process, which was completed in August 2016, has set a solid platform for the continued execution of this project. In Mozambique, we continue to advance our growth projects to further develop our footprint in that region. We look forward to building on Sasol’s past successes, as we lead the company forward and continue to grow in both Southern Africa and North America.
In the medium-term, we will continue to focus on pursuing zero harm, building a resilient organisation for the future, nurturing our foundation businesses, delivering sustainable growth and clarifying our future investment opportunities,” said Stephen Cornell, Joint President and Chief Executive Officer, Sasol Limited.
Operating profit of R24,2 billion decreased by 48% compared to the prior year on the back of challenging and highly volatile global markets. Average Brent crude oil prices moved dramatically lower by 41% compared to the prior year (average dated Brent was US$43/bbl for the year ended 30 June 2016 compared with US$73/bbl in the prior year). Although commodity chemical prices were lower due to depressed oil prices, there was still strong demand and robust margins in certain key markets.
The average basket of commodity chemical prices decreased by 22% compared to a 41% decrease in oil. However, the average margin for our speciality chemicals business remained resilient compared to the prior year. The effect of lower oil and commodity chemical prices was partly offset by a 27% weaker average rand/US dollar exchange rate (R14,52/US$ for the year ended 30 June 2016 compared with R11,45/US$ in the prior year).
On average, the rand/bbl oil price of R630 was 25% lower compared to the prior year.
The highlights of our operational performance can be summarised as follows:
- Secunda Synfuels Operations (SSO) increased production volumes by 1%, or 97 kilo tons (kt), compared to the prior year, to a record 7,8 million tons;
- Production volumes at our Eurasian Operations increased by 4% compared to the prior year;
- Total liquid fuels production for the Energy business increased by 1% (0,6 million barrels) compared to the prior year due to higher total production volumes by SSO, continued stable operations at the Natref Operations and a greater portion of SSO’s volumes being utilised by the Energy business as a result of planned commissioning activities associated with the C3 Expansion Project;
- The average utilisation rate of our ORYX GTL facility in Qatar was impacted by a planned extended statutory shutdown in the third quarter of the financial year. Subsequent to the shutdown, utilisation rates averaged above 100% of nameplate capacity, enabling us to achieve an overall utilisation rate of 81%, which is in line with previous market guidance provided;
- Secunda Chemical Operations’ production volumes were 1% higher than in the prior year;
- Despite the largest planned statutory shutdown since its inception, Sasolburg Operations’ production volumes remained in line with the prior year. The planned extended statutory shutdown resulted in a 21% decrease in ammonia production compared to the prior year. This was partly offset by the slightly slower than planned ramp-up of our FTWEP facility which contributed 8 kt per annum of additional hard wax production during the year. Normalised production volumes for the Sasolburg site increased by 2%;
- Sales volumes from our Base Chemicals business decreased by 8% as a result of a planned extended shutdown to enable the commissioning activities of the C3 Expansion Project, subdued demand for explosives and fertilizers and a planned stock build. Normalised sales volumes decreased by 2,6% on a comparable basis; and
- Sales volumes from our Performance Chemicals business, normalised for the planned shutdowns at our Sasolburg facilities and ethylene plant in North America, increased by 1,8% compared to the prior year.
Cost containment programme delivering sustainable savings
We continued to drive our cost containment programme and held cash fixed costs flat in nominal terms compared to the prior year. Excluding the impact of inflation, exchange rates and a reduction in onceoff costs, our cash fixed costs reduced by 8,1% in real terms compared to the prior year.
The strong cost performance was achieved by an accelerated sustainable delivery of our Business Performance Enhancement Programme (BPEP) and RP.
Given a lower for much longer oil price environment, we have revised our company-wide BPEP to achieve sustainable savings at an exit run rate of R5,4 billion by the end of the 2018 financial year. In 2016, we delivered actual sustainable cost savings of R4,5 billion, exceeding our exit run rate target of R4,3 billion. Cost trends are still forecasted to track South African producers’ price index (SA PPI) from the 2017 financial year. Implementation costs amounted to R278 million for the year compared to R1,9 billion in the prior year.
Our comprehensive RP, focusing on cash conservation in reaction to the lower for much longer oil price environment, has continued to yield positive cash savings in line with our 2016 financial year targets, despite margin contraction and difficulties experienced in placing product. The RP realised R28 billion of cash savings for the year and exceeded the upper end of our original 2016 financial target of cash savings of R16 billion by R12 billion.
The RP places the company in a strong position to operate profitably within a US$40-50/bbl
oil price environment. During the year, we updated and extended the scope of the RP to at least the 2018 financial year to ensure continued balance sheet strength and earnings resilience at notably lower oil price scenarios. We also increased the target from R30 billion to R50 billion to between R65 billion and R75 billion.
Most of the savings will be delivered from the current RP work streams. We expect our sustainable cash cost savings to increase to R2,5 billion by the 2019 financial year, up R1 billion from the previous market guidance provided of R1,5 billion.
Once-off and significant items
Sasol’s profitability was impacted by the following notable once-off and significant items:
- a net remeasurement items expense of R12,9 billion compared to a R0,8 billion expense in the prior year. These items relate mainly to partial impairments of our low density polyethylene cash generating unit in the United States (US) of R956 million (US$65 million) and our share in the Montney shale gas asset of R9,9 billion (CAD880 million) due to a further deterioration of conditions in the North American gas market resulting in a decline in forecasted natural gas prices. We expect the low gas price environment to continue in the short to medium-term;
- a cash-settled share-based payment charge to the income statement of R371 million compared to a credit of R1,4 billion in the prior year. The credit in the prior year was largely due to a 29% decrease in the share price in financial year 2015; and
- the reversal of a provision of R2,3 billion (US$166 million) based on a favourable ruling received from the Tax Appeal Tribunal in Nigeria relating to the Escravos Gas-to-Liquids (EGTL) project;
The increase in the effective corporate tax rate from 31,7% to 36,6% was mainly as a result of the R9,9 billion (CAD880 million) partial impairment of our Canadian shale gas assets which was partially offset by the recognition of a previously unrecognised deferred tax asset on the Production Sharing Agreement (PSA) in Mozambique of R945 million. The normalised effective tax rate, excluding equity accounted investments, remeasurement items and once-off items, is 28,2% compared to 33,0% in the prior year, which is in line with our previous market guidance.
The valuation of our assets and liabilities were significantly impacted by the weaker rand/US dollar exchange rate, resulting in higher translation effects. Actual capital expenditure, including accruals, of R70,4 billion, is below our market guidance of R74 billion largely due to our cash conservation initiatives and actively managing the capital portfolio. This includes R42,4 billion (US$2,9 billion) relating to the Lake Charles Chemicals Project (LCCP).
Loans raised during the year amounted to R37 billion, mainly for the funding of the LCCP. Our net cash position remained favourable and decreased marginally by 2%, from R53 billion in June 2015 to R52 billion as at 30 June 2016, driven largely by our cash conservation initiatives and the impact of the favourable rand/US dollar translation effect.
Strong cash generation ability
Cash generated by operating activities decreased by only 12% to R54,7 billion compared with R61,8 billion in the prior year, despite an average 25% decrease in Rand oil prices. Notwithstanding reduced cash flows, our balance sheet has the capacity to lever up, as we continue to execute our growth plans and return value to our shareholders. Although our gearing increased to 14,6% compared to an ungeared 2,8% in the prior year, it remains below our previous market guidance of 20% to 40%, mainly as a result of a stronger than anticipated rand/US dollar exchange rate and delayed capital expenditure on a number of projects, including the LCCP. To manage the impact of price volatility and the lower for longer oil price environment, the Sasol Limited board of directors (Board) temporarily lifted our internal gearing ceiling to 44% until the end of the 2018 financial year. The net debt: EBITDA ratio is forecasted to be below 2,0 times. We actively manage our capital structure and funding plan to ensure that we maintain an optimum solvency and liquidity profile.
Our dividend policy is to pay dividends within a dividend cover range based on HEPS. Taking into account the current volatile macroeconomic environment, capital investment plans, our cash conservation initiative, the current strength of our balance sheet, and the dividend cover range, the Board has declared a final gross dividend of R9,10 per share (21% lower compared to the prior year). The final dividend cover was 2,8 times at 30 June 2016 (30 June 2015: 2,7 times).
Profit outlook* – solid production performance and cost reductions to continue
The current economic climate remains volatile and uncertain. While the outcome of the United Kingdom referendum, regarding its exit of the European Union, adds a further element of uncertainty and downside risk to the global economic outlook, we expect moderate global growth to be maintained, with advanced economies generally performing better than commodity- and oil-exporting nations. In the short-term, high oil inventory levels are expected to continue weighing on the market, but as more evidence emerges of lower non-OPEC production, the oil price cycle is likely to turn higher. The extent and timing of this upturn remains unpredictable. Although the rand showed some resilience in recent months, it is believed that the currency still faces a number of near-term depreciation risks as the possibility for a sovereign credit downgrade has not been eliminated, domestic growth prospects remain challenging, and emerging market sentiment is still fragile. As oil price and foreign exchange movements are outside our control, our focus remains firmly on managing factors within our control, including volume growth, cost optimisation, project execution, effective capital allocation and cash conservation.
We expect an overall strong operational performance for the 2017 financial year, with:
- Liquid fuels sales volumes for the Energy SBU in Southern Africa to be approximately 61 million barrels;
- Base Chemicals and Performance Chemicals sales volumes to be higher than the prior year;
- A higher average utilisation rate at ORYX GTL in Qatar of approximately 90%;
- Improved utilisation rate at EGTL in Nigeria due to a steady ramp-up;
- Normalised cash fixed costs to remain in line with SA PPI;
- The RP cash flow contribution to range between R15 billion and R20 billion;
- BPEP cash cost savings to achieve an annual run rate of R5,4 billion by financial year 2018;
- Capital expenditure, including capital accruals, of R75 billion for 2017 and R60 billion in 2018 as we progress with the execution of our growth plan and strategy. The LCCP capital spend market guidance has been provided in the Investor Fact Sheet available on our website at www.sasol.com. Capital estimates may change as a result of exchange rate volatility;
- Our balance sheet gearing up to a level of between 25% and 35%;
- Average Brent crude oil prices to remain between US$40 and US$50; and
- Ongoing rand/US dollar volatility due to various factors, including the pending outcome of the next review of the South African sovereign credit rating and increased capital inflows resulting from investors seeking higher yields globally, including South Africa.
* The financial information contained in this profit outlook is the responsibility of the directors and in accordance with standard practice, it is noted that this information has not been reviewed and reported on by the company’s auditors.
Publication of 2016 Annual Financial Statements and supplementary information
The full earnings release, the annual financial statements and supplementary information for the financial year ended 30 June 2016, prepared in accordance with International Financial Reporting Standards have been posted on the Investor Centre on the Sasol website at www.sasol.com.
Declaration of cash dividend number 74
A final gross cash dividend of South African 910,00 cents per ordinary share has been declared for the financial year ended 30 June 2016. The cash dividend is payable on the ordinary shares and the Sasol BEE ordinary shares. The Board is satisfied that the liquidity and solvency of the company, as well as capital remaining after payment of the dividend is sufficient to support the current operations. The dividend has been declared out of retained earnings (income reserves). The South African dividend withholding tax rate is 15%. At the declaration date, there are 651 389 516 ordinary (including 8 809 886 treasury shares), 25 547 081 Sasol preferred ordinary and 2 838 565 Sasol BEE ordinary shares in issue. The net dividend amount payable to shareholders who are not exempt from the dividend withholding tax, is 773,50 cents per share, while the dividend amount payable to shareholders who are exempt from dividend withholding tax is 910,00 cents per share.
The salient dates for holders of ordinary shares and Sasol BEE ordinary shares are:
|Declaration date||Monday, 12 September 2016|
|Last day for trading to qualify for and participate in the final dividend (cum dividend)||Tuesday, 27 September 2016|
|Trading ex dividend commences||Wednesday, 28 September 2016|
|Record date||Friday, 30 September 2016|
|Dividend payment date (electronic and certificated register)||Monday, 3 October 2016|
|The salient dates for holders of our American Depository Receipts are1:|
|Ex dividend on New York Stock Exchange (NYSE)||Wednesday, 28 September 2016|
|Record date||Friday, 30 September 2016|
|Approximate date for currency conversion||Tuesday, 4 October 2016|
|Approximate dividend payment date||Thursday, 13 October 2016|
- All dates are approximate as the NYSE sets the record date after receipt of the dividend declaration.
On Monday, 3 October 2016, dividends due to certificated shareholders on the South African registry will either be electronically transferred to shareholders’ bank accounts or, in the absence of suitable mandates, dividend cheques will be posted to such shareholders. Shareholders who hold dematerialised shares will have their accounts held by their CSDP or broker credited on Monday, 3 October 2016. Share certificates may not be dematerialised or re-materialised between 28 September 2016 and 30 September 2016, both days inclusive.
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 29 September 2014 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.