Sasol takes currency hit, and reduces dividend despite leap in after-tax profit
Sasol grew its revenue measured in dollars by 6.4% to $12.7bn. But the rand strengthening over the year to end-June translated that into a 0.3% decline to R172.4bn measured in local currency.
Sasol’s headline earnings per share (HEPS) decreased by 15% to R35.15.
After-tax profit, though, grew 53% to $1.6bn, or 43% to R21.5bn in local currency, Sasol said in its results released on Monday morning.
The growth in profit, however, is not being passed on to investors.
Sasol cut its final dividend by 14% to R7.80 per share from R9.10.
Sasol also cut its interim dividend by 17% to R4.80 from R5.70, reducing its total dividend for the 2017 financial year by 15% to R12.60 from R14.80.
Among the reasons for the lower dividend was the need to finance various large projects, including its Lake Charles Chemicals Project (LCCP) in the US.
Sasol lowered estimated returns at the $11bn Lake Charles project. The company projected an internal rate of return (IRR) of 7%-8% at Lake Charles using “conservative” ethane prices, compared with a previous estimate of about 8%, co-CEO Steve Cornell told reporters on a call on Monday. Sasol’s weighted average cost of capital for the project is 8%.
The company reran the numbers after “limited structural changes” to market fundamentals since February, when it last published long-term IRR estimates, it said in an earlier statement.
“It’s lowered because of the views in the industry primarily around polyethylene margins pushing it down,” Cornell said. The cracker remained cost competitive and was at the lower end of the cost curve for ethylene producers, the company said.
“Actual capital expenditure, including accruals, amounted to R60.3bn. This includes R36.8bn ($2.7bn) relating to the LCCP,” it said.
“Our actual capital expenditure for the full year is below previous market guidance of R66bn, largely due to the stronger exchange rate, re-phasing of the LCCP capital cash flow and active management of the capital portfolio. amounting to R800m.”
The Lake Charles project is now 74% complete with capital expenditure to date of $7.5bn.
Sasol’s oil sales in dollars benefited from the average international price rising 15% to $49.77 a barrel from $43.37 a barrel over its financial year.
But this was offset by the rand strengthening by 11%, from R14.71/$ to R13.06/$.
Highlights of the year included its Secunda synfuels operations increasing production volumes by 1% to a record 7.83-million tonnes.
Sasol said its Canadian shale gas asset in Montney reduced its operating loss contribution to R746m from R1.1bn in the prior year besides a R9.9bn impairment.
The group’s gas sales volumes fell 2%, which Sasol said was mainly due to lower market demand.
Its share of power produced at the Central Térmica de Ressano Garcia joint operation in Mozambique amounted to 658 gigawatt-hours of electricity, 1% higher than the prior year.