Sasol’s pain continues – but it has a plan by Shaun Jacobs

[Nat Quinn]

Sasol is coming under immense financial strain, with its earnings per share expected to decline by between 47% and 61%.

This was revealed in the company’s trading statement for the six months ended 31 December 2024, released early on 5 February.

The company, one of South Africa’s largest employers, has faced operational difficulties and declining prices for its products over the past year.

In particular, the average rand price for a barrel of oil declined by 13% during the six-month period, resulting in a significant reduction in Sasol’s refining margins.

Operational challenges at Secunda and Sasolburg continued, resulting in a 5% decline in sales volumes due to lower production.

The company also suffered a net loss of R6.2 billion relating to the cash-generating units at Secunda and Sasolburg remaining fully impaired.

These negative financial impacts were partially offset by an increase in average chemicals basket prices, stringent cost management and efficient capital expenditure.

Overall, the company expects its earnings per share to be between R6 and R7 for the period, a decline of between 37% and 41% compared to the prior half-year.

Headline earnings per share, which removes the effect of one-time charges, write-downs and other extraordinary items, are expected to be between R13 and R15. This represents a decline of between 26% and 36% compared to the prior half-year.

Sasol said in the statement that it remains focused on improving the performance of the business.

CEO Simon Baloyi explained in a recent interview with Bloomberg that the company is particularly looking at reviving its international chemical business.

This is expected to boost earnings in the medium term and open up the option to list the business separately.

The South African maker of fuel and chemicals from coal reported its first loss since 2020 last year and took billions of dollars in writedowns. The company has about R75 billion of debt and suspended dividend payouts. Its shares tumbled 55% in 2024.

Baloyi sees the company’s $12.8 billion Lake Charles chemicals facility in Louisiana as a significant factor in generating cash and raising investor confidence.

The company separated the international chemical business from operations in South Africa and has set targets to increase its contribution to earnings and strengthen it as a standalone entity.

While chemicals make up about a third of earnings, the regional contribution of the US is just 6%.

“In the future, at the peak of the chemical market, it’s going to give us lots and lots of strategic options to create shareholder value, where you can have the option to either list it by itself or you can merge it with someone else,” Baloyi said.

Another unanticipated obstacle that has emerged for Sasol in recent years has been the quality of coal it produces and uses to feed its Secunda manufacturing hub.

That’s become another priority, and the company has made a final investment decision on a de-stoning project to improve the quality of the coal, according to Baloyi.

The company has been purchasing about 4 million tons of the fuel a year to make up for the issue, that he considers a waste of money.

“We shouldn’t be buying coal because we have the infrastructure, we have the people, we have everything to mine the coal.”

 

source:Sasol’s pain continues – but it has a plan – Daily Investor

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