Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Sasol flagged a hefty drop in annual profit on Monday, blaming more than R55bn in writedown charges and handing newly appointed CEO Simon Baloyi a baptism of fire.
The petrochemical giant, the biggest corporate taxpayer in SA, said in a trading update that headline earnings per share (HEPS) for the year ended June were expected to be 59%-77% lower at R12.28-R21.95.
Core HEPS are expected to be R35.03-R43.62, or 9%-27% lower than a year ago. Core profit, or adjusted earnings before interest, tax, depreciation and amortisation (ebitda), are expected to decline by 2%-17% to R54.7bn-R64.7bn.
Earnings for the year were affected by notable noncash adjustments, including a net loss of R55.8bn after tax on remeasurement items mainly due to impairments. These include Chemicals America ethane value chain (alcohols, alumina, ethylene oxide, ethylene glycols and associated shared assets) cash generating unit (CGU) of R45.5bn and Chemicals Africa’s polyethylene, chlor-alkali & polyvinyl chloride and wax value chain CGUs of R3.9bn.
The impairments were primarily driven by external conditions, including prolonged softer market pricing and outlook, Sasol said.
They include an impairment at Secunda liquid fuels refinery CGU of R5.7bn and derecognition of a deferred tax asset to the value of R15.3bn, mainly relating to assessed loss carried forward on its Chemicals America operations, which are not anticipated to be used and unrealised gains of R4.7bn on the translation of monetary assets and liabilities, and valuation of financial instruments and derivative contracts.
CEO Simon Baloyi. Picture: SUPPLIED
As a result, Sasol expects to report a basic loss per share of R68.82-R71.48 compared with the previous year’s basic earnings per share of R14.
The group said these factors were partially offset by the stronger oil price in rand, improved refining margins and higher sales volumes. Additionally, Sasol’s stronger operational performance in the fourth quarter contributed to a stronger second-half performance.
The profit warning signals difficulties at Sasol. Its giant Secunda plant is its biggest money-spinner and its biggest headache. Baloyi, who took the helm two months ago, will face investors later this month hoping to convince them that Sasol can deliver on its ambitious decarbonisation targets while navigating a challenging macroeconomic environment and maintaining profitability.
“We don’t think such a sustained negative price cycle is sustainable. Either projects will be cancelled and supply removed, or demand will recover,” said Graham York, an analyst at Standard Bank Securities in a note to clients. “Potential catalysts? — we expect incoming CEO Baloyi to focus on the interventions, streamlining of ops and strategic outlook for the business.”
The share price of SA’s biggest private sector carbon emitter, ended 1.33% softer at R128.50. It has been a dramatic fall from grace for a stock that fetched north of R600 just a decade ago.
Standard Bank expects the share price to reach R550 in future, based on its models about earnings forecasts and assumed valuation multiples, according to the note. /With Andrew Linder
Update: August 12 2024 This story has been updated with new information.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Baptism of fire for new Sasol CEO
Sasol flagged a hefty drop in annual profit on Monday, blaming more than R55bn in writedown charges and handing newly appointed CEO Simon Baloyi a baptism of fire.
The petrochemical giant, the biggest corporate taxpayer in SA, said in a trading update that headline earnings per share (HEPS) for the year ended June were expected to be 59%-77% lower at R12.28-R21.95.
Core HEPS are expected to be R35.03-R43.62, or 9%-27% lower than a year ago. Core profit, or adjusted earnings before interest, tax, depreciation and amortisation (ebitda), are expected to decline by 2%-17% to R54.7bn-R64.7bn.
Earnings for the year were affected by notable noncash adjustments, including a net loss of R55.8bn after tax on remeasurement items mainly due to impairments. These include Chemicals America ethane value chain (alcohols, alumina, ethylene oxide, ethylene glycols and associated shared assets) cash generating unit (CGU) of R45.5bn and Chemicals Africa’s polyethylene, chlor-alkali & polyvinyl chloride and wax value chain CGUs of R3.9bn.
The impairments were primarily driven by external conditions, including prolonged softer market pricing and outlook, Sasol said.
They include an impairment at Secunda liquid fuels refinery CGU of R5.7bn and derecognition of a deferred tax asset to the value of R15.3bn, mainly relating to assessed loss carried forward on its Chemicals America operations, which are not anticipated to be used and unrealised gains of R4.7bn on the translation of monetary assets and liabilities, and valuation of financial instruments and derivative contracts.
As a result, Sasol expects to report a basic loss per share of R68.82-R71.48 compared with the previous year’s basic earnings per share of R14.
The group said these factors were partially offset by the stronger oil price in rand, improved refining margins and higher sales volumes. Additionally, Sasol’s stronger operational performance in the fourth quarter contributed to a stronger second-half performance.
The profit warning signals difficulties at Sasol. Its giant Secunda plant is its biggest money-spinner and its biggest headache. Baloyi, who took the helm two months ago, will face investors later this month hoping to convince them that Sasol can deliver on its ambitious decarbonisation targets while navigating a challenging macroeconomic environment and maintaining profitability.
“We don’t think such a sustained negative price cycle is sustainable. Either projects will be cancelled and supply removed, or demand will recover,” said Graham York, an analyst at Standard Bank Securities in a note to clients. “Potential catalysts? — we expect incoming CEO Baloyi to focus on the interventions, streamlining of ops and strategic outlook for the business.”
The share price of SA’s biggest private sector carbon emitter, ended 1.33% softer at R128.50. It has been a dramatic fall from grace for a stock that fetched north of R600 just a decade ago.
Standard Bank expects the share price to reach R550 in future, based on its models about earnings forecasts and assumed valuation multiples, according to the note. /With Andrew Linder
Update: August 12 2024
This story has been updated with new information.
mackenziej@arena.africa
motsoenengt@businesslive.co.za
Sasol’s Secunda plant gets emissions reprieve
Sasol appeals decision to set aside maximum gas price
Sasol coal exports rise after ‘slight’ improvement at Transnet
Companies in this Story
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Most Read
Related Articles
ALEXANDER PARKER: The unlikely, awesome power of DA’s Dion George
Wave of impairments on JSE tops R250bn
Sasol’s Secunda plant gets emissions reprieve
Sasol appeals decision to set aside maximum gas price
Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.