JOHANNESBURG, Feb. 24, 2020 /PRNewswire/ -- Financial performance and position
* Per the Revolving credit facility and US dollar Term Loan covenant definition
Resilient operational performance
Lake Charles Chemicals Project (LCCP) updated
Positioning for a sustainable future
** Broad-based Black Economic Empowerment
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 being in a ramp-up phase.
Earnings decreased by 72% to R4,5 billion compared to the prior period. This resulted from 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. 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.
As the LCCP units progress through the sequential beneficial operation schedule, our revenues do not yet match the costs expensed. 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.
Total cash fixed cost increased by 10% to R30,5 billion as a result of United States (US) growth costs and inflation. Normalised cash fixed cost* increased by 5,4%, which is within our internal inflation target of 6%. Our cost management processes remain robust while we continue to evaluate further opportunities to embed our continuous improvement efforts. The sustained competitiveness of our business remains top of mind.
As a result of the aforementioned factors our key financial metrics were impacted as follows:
* Excludes US growth and business establishment costs.
31 Dec 19
31 Dec 19
EBIT (R million)
Depreciation and amortisation
Earnings before interest, tax, depreciation and amortisation (EBITDA)
Unrealised hedging gains²
Unrealised translation gains³
Change in discount rate of environmental provisions
1 Share-based payments includes both cash-settled and equity-settled share-based payment charges.
2 Consists of unrealised hedging gains on Group hedging activities.
3 Unrealised translation gains on the translation of foreign currency denominated loans.
Core headline earnings per sharev reconciliation
31 Dec 19
31 Dec 19
Basic earnings per share
Net remeasurement items
Headline earnings per share
Translation impact of closing exchange rate¹
Realised and unrealised net gains on hedging activities²
Khanyisa B-BBEE transaction³
LCCP losses during ramp-up⁴
Provision for tax litigation matters⁵
Core headline earnings per sharev
1 Translation losses/(gains) arising on the translation of monetary assets and liabilities into functional currency.
2 Consists of realised and unrealised net gains on Group hedging activities of R0,5 billion compared to R1,1 billion in the prior period, incurred within the Group Functions segment, and net gains on foreign exchange contracts of R0,5 billion compared to net losses of R0,7 billion in the prior period.
3 Sasol Khanyisa equity-settled share-based payments charges recorded in the employee-related expenditure line in the income statement.
4 Losses totalling R2,8 billion (being R1,6 billion and R1,2 billion incurred by the Performance Chemicals and Base Chemicals segments respectively) relating to negative EBITDA of R1,1 billion and depreciation of R1,7 billion attributable to the LCCP while in ramp-up phase.
5 Sasol Oil tax matter settlement including interest and penalties.
Balance sheet management
Our gearing increased from 56,3% at 30 June 2019 to 64,5% which is at the upper end of our previous market guidance of 55% to 65%. The main reasons for the increase in gearing are the adoption of the IFRS 16 'Leases' accounting standard (4% increase) and the net earnings impact of the LCCP being in a ramp-up phase. Consistent with our long-term commitment to maintain our investment grade credit rating, we continue to actively manage the balance sheet with the objective of maintaining a healthy liquidity position and a balanced debt maturity profile.
The lenders have agreed to increase the covenant level to 3,5 times for the financial reporting periods ending December 2019 and June 2020. Our net debt: EBITDA at 31 December 2019, based on the Revolving Credit facility and US dollar Term Loan covenant definition, was 2,9 times, which remains well below the covenant.
We secured incremental US dollar liquidity through a US$1 billion syndicated loan facility for up to 18 months, and bilateral facilities (with a combined quantum of US$250 million) with a tenor of two years. These facilities enhance our US dollar liquidity position during the peak gearing phase as the LCCP ramps up.
In the South African market, we have both bank loan facilities and an R8,0 billion Domestic Medium- Term Note Programme (DMTN) which was established in 2017. In August 2019, we issued our inaugural paper to the value of R2,2 billion in the local debt market under this DMTN programme.
Cash generated by operating activities decreased by 21% to R19,6 billion compared to R24,8 billion in the prior period. This was largely due to the softer macroeconomic environment and losses attributable to the LCCP. The decrease was partially negated by another strong working capital and cost performance from the foundation business. Working capital decreased by R433 million during the period mainly as a result of focused management actions.
Our net cash on hand position decreased from R15,8 billion as at 30 June 2019 to R12,7 billion.
Actual capital expenditure, including accruals, amounted to R21 billion. This includes R10 billion (US$0,7 billion) relating to the LCCP and is in line with our internal targets.
In line with our financial risk management framework, we continue to make good progress with hedging our currency and ethane exposure. For further details of our open hedge positions we refer you to our Analyst Book (www.sasol.com).
After careful consideration of our current leverage and the volatility in the macroeconomic environment, the Board of directors (Board) decided to pass the interim dividend to protect and strengthen our balance sheet. This is a decision that was not taken lightly as we remain committed to delivering shareholder value, however, given the current position of our balance sheet, the Board made this decision in the long-term interest of our shareholders. We continue to ensure that we deliver the key elements of our strategy, particularly the completion of the LCCP.
Enhancing shareholder value through portfolio optimisation
As previously announced, we initiated a review of our portfolio in 2017 to ensure that our capital is invested effectively. We reviewed the entire portfolio to optimise the potential of each asset and focus only on assets that can generate attractive returns through the cycle, are fit for purpose and are core to our long-term strategic focus. This asset review process is now substantially complete and we have identified a number of assets for divestment or equity dilution, potentially generating proceeds exceeding US$2 billion. Together with the partial divestment from the explosives business, we have concluded transactions amounting to 20% of the target and are currently reviewing and assessing the potential of other disposals. We are not relying on any disposals to deleverage the balance sheet and will be highly disciplined in all portfolio actions to ensure they enhance shareholder value. Protecting value and ensuring future quality of earnings are key metrics before an asset disposal mandate is provided and executed.
Update on Lake Charles Chemicals Project (LCCP)
Ongoing focus as we ramp up plants to beneficial operation
At the LCCP, we maintain our focus on safely improving productivity in the field and bringing the plants into beneficial operation. The project continued with its exceptional safety record with a recordable case rate (RCR) of 0,10.
At the end of December 2019, engineering and procurement activities were substantially complete and construction progress was at 98%, with overall project completion at 99%.
The investigation into the incident which occurred at the LDPE unit in January 2020 is complete. The root cause analysis determined that a piping support structure, within the LDPE emergency vent system, failed during commissioning causing a pipe to dislodge. No major equipment was damaged, and the incident was isolated. Remediation has commenced, however, the replacement of the high pressure piping material components have long lead times. We expect beneficial operation of the LDPE unit to be delayed to the second half of calendar year 2020. Parallel commissioning activities on the
remainder of the LDPE unit continue during remediation and every effort will be made to expedite the restoration project. The overall LCCP cost estimate is tracking US$12,8 billion, within our previous guidance of US$12,6 billion to US$12,9 billion, and our EBITDA estimate of US$50 million to US$100 million for FY20 remains.
During the time of the delay in the LDPE unit startup, the ethylene produced by the cracker and destined for the unit is sold externally. All previously commissioned units were unaffected and are operating to plan.
The ETO unit, the fourth of seven units, achieved beneficial operation on 30 January 2020. The unit has a nameplate capacity of 100 kilo tons (kt) per year, forms part of our ethylene oxide value chain and adds to the capacity of our Performance Chemicals product volumes already produced and sold on both a regional and global scale. The ETO unit follows the linear low-density polyethylene (LLDPE), world-scale ethane cracker and ethylene oxide/ethylene glycol (EO/EG) facilities, which all reached beneficial operation last year and are operating to plan. This provides additional flexibility to our ethylene oxide value chain and will enable us to divert some volume away from the mono-ethylene glycol (MEG) product line and support increased margins. As previously communicated, we still expect the Ziegler and Guerbet plants to achieve beneficial operation in the last quarter of FY20.
The ethane cracker is ramping up following the successful replacement of the acetylene reactor catalyst in December 2019. The plant is expected to operate according to plan for the remainder of the year. The LLDPE plant and the EO value chain are ramping up to plan with our learnings to be carried over to the LDPE ramp-up.
The LCCP remains a world-scale, first quartile feedstock-advantaged plant, highly integrated across a diverse product slate with high margin products and world class logistics and infrastructure.
The short-term market outlook for ethane and product pricing remains volatile and estimates will be updated periodically. We expect EBITDA in the range of US$600 million to US$750 million for FY21.
i Forward-looking statements are the responsibility of the Directors and in accordance with standard practice, it is noted that this statement has not been reviewed and reported on by the Company's auditors.
ii All comparisons to the prior period refer to the six months ended 31 December 2018. All numbers are quoted on a pre-tax basis, except for earnings attributable to shareholders.
iii All other operational and financial measures (such as cash fixed cost) have not been reviewed and reported on by the Company's auditors.
iv Adjusted EBITDA is calculated by adjusting EBIT for depreciation and amortisation, share-based payments, remeasurement items, movement in environmental provisions due to discount rate changes, unrealised translation gains and losses, and unrealised gains and losses on Group hedging activities. We believe Adjusted EBITDA is a useful measure of the Group's underlying cash flow performance. However, this is not a defined term under IFRS and may not be comparable with similarly titled measures reported by other companies. (Adjusted EBITDA constitutes pro forma financial information in terms of the JSE Limited Listings Requirements and should be read in conjunction with the basis of preparation and pro forma financial information notes as set out on page 21).
v Core HEPS is calculated by adjusting headline earnings per share with certain once-off items (provision for tax litigation matters and LCCP cash fixed cost with limited corresponding gross margin), period close adjustments and depreciation and amortisation of capital projects (exceeding R4 billion) which have reached beneficial operation and are still ramping up, and share-based payments on implementation of B-BBEE transactions. Period close adjustments include translation gains and losses arising from translation of monetary assets and liabilities into functional currency and realised and unrealised net gains on Group hedging activities at period end in order to remove volatility from earnings from period to period. (Core HEPS constitutes pro forma financial information in terms of the JSE Limited Listings Requirements and should be read in conjunction with the basis of preparation and pro forma financial information notes as set out on page 21).
The full announcement and the HY20 interim financial results will be available on the Company's website at https://www.sasol.com/investor-centre/financial-reporting/annual-integrated-report/interim-results.
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, expectations, 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, executing our growth projects (including LCCP), oil and gas reserves, cost reductions, our Continuous Improvement (CI) initiative and business performance outlook. Words such as "believe", "anticipate", "expect", "intend", "seek", "will", "plan", "could", "may", "endeavour", "target", "forecast" 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 and others are discussed more fully in our most recent annual report on Form 20-F filed on 28 October 2019 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: One billion is defined as one thousand million. bbl – barrel, bscf – billion standard cubic feet, mmscf – million standard cubic feet, oil references brent crude: mmboe – million barrels oil equivalent.
All references to years refer to the financial year ended 30 June.
Any reference to a calendar year is prefaced by the word "calendar".
Comprehensive additional information is available on our website: www.sasol.com
For Sasol Investor Relations:
Feroza Syed, Chief Investor Relations Officer
Direct telephone: +27(0)10-344-7778
SOURCE Sasol Limited