Sasol sees earnings drop 72%
Sandton based energy and chemical company Sasol on Monday (24 February), reported a 72% decrease in earnings for the six months ended December 2019, to R4.5 billion, citing a drop in the rand per barrel price of Brent crude oil.
“We delivered a satisfactory set of business results for the six months ended 31 December 2019, with increased volumes while cost and working capital tracked our internal targets contributing to the balance sheet covenant levels being maintained within market guidance.
“The financial results were impacted mostly by a weak macroeconomic environment, which resulted in lower margins, and the LCCP (Lake Charles Chemicals Project) being in a ramp-up phase,” Sasol said.
The group pointed to a 9% decrease in the rand per barrel price of Brent crude oil, softer global chemical prices and refining margins, lower productivity at our Mining operations and a negative contribution from the LCCP.
Financial highlights:
- Earnings before interest and tax (EBIT) decreased by 53% to R9.9 billion compared to the prior period;
- Adjusted EBITDA declined by 27% from R26.8 billion in the prior period to R19.6 billion;
- Basic earnings per share (EPS) decreased by 73% to R6.56 per share compared to the prior period;
- Headline earnings per share (HEPS) decreased by 74% to R5.94 per share compared to the prior period; and
- Core headline earnings per share (CHEPS) decreased by 57% to R9.20 compared to the prior period.
“Our gross margin percentage decreased by 2% compared to the prior period driven by a softer macroeconomic environment negatively impacting supply-demand dynamics especially in our chemicals businesses. We anticipate softer chemical prices over the next 12 to 24 months and expect structural recovery over the medium to long-term.
“Our Energy business was impacted by lower crude oil prices as well as lower refining margins due to weaker demand,” Sasol said.
Bloomberg reported that the LCCP is expected to produce the building blocks of products including packaging, bottles, and footwear, plus solvents, explosives and fertilizers. It’ll boost the portion of chemicals in Sasol’s sales mix to 70%.
However, the project has been beset by cost overruns amounting to billions of dollars, which led to the eventual resignation of co-CEOs Bongani Nqwababa and Stephen Cornell in October. On January 14 the chemicals group confirmed that there had been an explosion at the low-density polyethylene unit that led to a fire at the LCCP.
Sasol said that mainly as a result of the incident, it revised its guidance on the EBITDA contribution from the LCCP for the financial year 2020 to between US$50 million and US$100 million.
“As the LCCP units progress through the sequential beneficial operation schedule, our revenues do not yet match the costs expensed,” Sasol said on Monday.
“We do expect that for the second half of FY20 revenue will match the costs expensed better and that the LCCP will generate positive earnings before interest, tax, depreciation and amortisation (EBITDA).
The LCCP negatively impacted earnings by R2.8 billion (EBITDA of R1.1 billion and R1.7 billion in additional depreciation charges). Earnings were further impacted by approximately R2.0 billion in finance charges for the period as the LCCP units reach beneficial operation, the energy group said.
Sasol said that its board of directors decided to passed on an interim dividend “to protect and strengthen our balance sheet”.
Read: Sasol’s awesome bursary is now open to candidates – here’s what it includes
Loading ...