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Stronger rand knocks Sasol's profit

Feb 27 2017 11:56
Lameez Omarjee


Company Data

Sasol Limited [JSE:SOL]

Last traded 274
Change 7
% Change 3
Cumulative volume 1758301
Market cap 0

Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Johannesburg – Sasol’s [JSE:SOL] profitability has been negatively impacted by a stronger rand, prolonged strike action in Secunda and the reversal of a provision.

This is according to the group’s interim financial results for the six months to end-December 2016, released on Monday. The chemicals and energy group’s operating profit is down 8% to R13.7bn compared to the previous period.

Headline earnings per share decreased 38% to R15.12, and earnings per share lifted 19% to R14.21.

According to the group’s SENS, the strengthening of the rand against the US dollar to R13.74 at December 31 2016, compared to the level of R14.71 on June 30 2016, translated into R1.3bn worth of losses.

“The valuation impact of the stronger closing exchange rate for the period under review negatively impacted earnings by approximately R1.46 per share,” the group explained.

Further, the strike in Secunda resulted in an additional net cost of R1bn, or R1.06 per share. The strike, by the Association of Mineworkers and Construction Union resulted in a 16% drop in mining production volumes.

The reversal of a R2.3bn provision, based on a favourable ruling by the Tax Appeal tribunal in Nigeria related to the group’s  Escravos Gas-to-Liquids project also impacted profitability.

Despite these negative effects, the group said that performance was in line with expectations.

Sasol reported increased production volumes at its Secunda and Eurasian operations.

Despite the strike in Secunda, mining operations delivered “full coal supply commitment” by means of external coal purchases and increased gas consumption at Secunda Synfuels Operations.

The group accumulated cost savings of R4.9bn through its Business Performance Enhancement Programme and R17.8bn through its Response Plan.

Joint president and CEO Bongani Nqwababa said the performance of the group’s global businesses also contributed to the overall performance, and joint CEO Stephen Cornell added the group will continue working on its global growth strategy.

"Advancing our value based growth strategy continues through our near-term focus on Southern Africa and North America. Our Lake Charles Chemicals Project in the United States is now 64% complete, and remains on track for start-up of the first units in the second half of 2018.” 

The group reaffirmed its commitment to operations in Mozambique. Operating profit for Mozambican operations increased from R437m previously to R988m due to increased production volumes.

“In Mozambique, we remain committed to our growth plans and will continue to partner with the country's government and other stakeholders on projects that will help stimulate socio-economic growth,” added Cornell.

READ: Sasol deal 'rips off' Mozambique

The group expects results to improve in the second half of the year as global oil and product prices continue to recover.

“Despite the soft commodity chemical prices experienced during the first quarter of 2017, we have seen a steady increase in demand and resilient margins in certain key markets during the second quarter of 2017,” the group said.

However, capital expenditure has been revised down from R75bn to R66bn for the full year.

“[This is] largely due to the impact of the stronger rand/US dollar exchange rate coupled with our cash conservation initiatives and active management of our capital portfolio,” said the group.

So far capital expenditure amounted to R30.2bn and of this, R17.4bn was allocated to the Lake Charles Chemicals Project.  

A gross interim dividend of R4.80 per share was declared. This is 15.8% lower than the previous period, in the light of a volatile macro-economic environment and capital investment plans, among other things, said the group. 

The share was trading at R370.32 at 11:15 in Johannesburg. 

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