Publications
Partners
Johannesburg - Sasol headline earnings per share (HEPS) plummeted by 15% to R35.15, even as it reported record sales volumes.
The chemical conglomerate released its annual financial results for the year ended June 30 2017 on Monday.
Cash generated by Sasol’s operating activities decreased by 19% to R44.1bn compared with R547bn in the prior year, on the back of Sasol’s purchases of crude oil options of R1.3bn, increases in working capital, as well as a stronger rand.
Labour action at some of its plants also affected its financials, while a tax dispute with the South African Revenue Service also weighed in on its performance.
But Sasol believed it delivered a strong business performance across most of the value chain, with its Secunda Synfuels Operations (SSO) reporting record volumes. The operation increased production volumes by 1% to a record 7.83 million tonnes.
The company’s Eurasian Operations also delivered its highest production volumes since 2015.
Although liquid fuels sales volumes were down by 2%, sales volumes for base chemicals rose by 3% and performance chemicals up 2%.
The liquid fuels sales volumes business decreased by 2% due to a greater portion of production volumes from SSO being allocated to its higher margin yielding chemical businesses and lower Natref production volumes.
The production volumes of the Natref inland crude oil refinery in Sasolburg decreased by 5%, mainly due to planned plant shutdowns during the first half of the year that contributed to a 3% decrease in production volumes. In May, Sasol also had to close part of Natref following an explosion, which led to a 2% reduction in production volumes.
Excluding the effect of the Natref downtime and lower allocated volumes from SSO, Sasol’s liquid fuels sales volumes increased by 1%, the company stated.
Sasol biggest foe however was a stronger rand and the recession-hit South African economy. The company blamed macroeconomic environment, particularly the stronger rand and low oil price. Because most of its sales are calculate in dollars, Sasol benefits when the rand is weaker. Most of its operating costs are calculated in rand.
Earnings attributable to shareholders for the year ended June 30 2017 increased by 54% to R20.4bn from R13.2bn in the prior year, and earnings per share (EPS) increased by 54% to R33.36 compared to the prior year.
Sasol said its EPS in the prior year was also negatively impacted by the R9.9bn partial impairment of its Canadian shale gas assets.
Core headline earnings increased by 6% to R2.29 per share from the previous year. Sasol said its board considers core headline earnings as an appropriate indicator of the sustainable operating performance of the group.
“Notwithstanding the volatile macro-economic environment in which we operate, Sasol delivered a resilient performance,” said Sasol CEO Bongani Nqwababa. “This is testament to the robust foundation we have in place to position Sasol for long-term growth, since we are able to operate profitably and generate healthy free cash flows at oil prices of US$40/bbl.”
He said Sasol’s sound business fundamentals are reflected in the company’s record production volumes.
To drive future growth, Sasol will sustain its robust foundation through meticulous ongoing continuous improvements, while further enhancing its systems and capital allocation process, it said.
Sasol also entered into a number of hedges in the last year to guard against specific financial risks and provide protection against unforeseen movements in oil prices, interest rates, currency movements, and commodity and final product prices.
It said approximately 50% of the crude oil exposure was hedged with crude oil put options for 2017 and 2018 at a net price of US$48,15/bbl.
A total net loss of R237m ($17m) was recognised during the period. To manage the exposure to the US dollar, approximately 70% of the rand/US dollar exposure has been hedged with zero-cost collar instruments at a floor of R13.46 for 2018.
SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.
Read Fin24's top stories trending on Twitter: Fin24’s top stories
