Sasol boss vows decisive action on struggling units

Sasol is reviewing its asset portfolio, with emphasis on its international chemicals business, in a process that might lead to it disposing of non-performing assets.

The petrochemical group’s net debt in the year to end-June climbed to $4.1bn (R73bn), about 82.7% of the company’s market valuation of R88.3bn.

“We will take decisive actions on underperforming assets to ensure robust returns that are comparable to our peers,” CEO Simon Baloyi said.

The asset review is the second in less than five years, underscoring the precarious position of a company in the crosshairs of climate-conscious investors. In 2020, it embarked on a sale of assets to pay down a mountain of debt that wiped off shareholder equity and topped R400bn in 2014.

Lake Charles

Outgoing CFO Hanre Rossouw said: “The review is ... not specifically focused on the chemicals business. But given the pain we are going through there, [Baloyi] outlined that cash flow generation and return on investor capital will be key metrics to trigger asset reviews.

“We will, of course, prioritise making sure that those assets are running at full potential. The outcome of an asset review is multifaceted. It could be a sale, repair or closure.”

Baloyi shot down the idea that Sasol might as part of the asset review sell its 50% stake in the Lake Charles chemicals complex in the US. He said this is something the company might consider in future, because selling the stake now would not lead to good returns for shareholders.

The group swung into a R44.2bn annual loss from a profit of R9.3bn a year ago. Impairment losses amounted to R56.7bn, while turnover slipped 5% to R275.1bn.

The impairments were primarily driven by external conditions, including prolonged softer market pricing and outlook, Sasol said.

The items weighing on profits were partially offset by the stronger rand oil price, improved refining margins, reduced total costs and higher sales volumes.

The group’s stronger operational performance in the fourth quarter contributed to an overall stronger performance in the second half of the year, it said.

The mismatch between earnings and cash flow, which plunged 60% to R8bn, prompted Sasol to skip a final dividend and to launch a new dividend policy. The revised policy is based on 30% of free cash flow generated, provided that net debt is below $4bn on a sustained basis.

The net debt for 2024 of $4.1bn exceeds the target net debt, triggering the new dividend policy and results in no final dividend being declared for 2024, resulting in a full-year dividend of R2 per share, it said.

Reducing debt

Rossouw said the change in dividend policy was meant to protect and strengthen the group’s balance sheet.

“We will use most of our cash to reduce debt until we get debt to sustainably below $4bn and then we will use 30% of cash for dividends, with the rest going to debt repayment and other capital allocation decisions,” he said.

“The dividend policy change signals resolve and corrects what happened previously when we paid dividends out of debt. That is not the way to pay dividends — we have to pay them out of cash.”

Capital expenditure excluding movement in capital project related payables in the year amounted to R30.2bn compared with R30.9bn a year ago. Capital spend relates mainly to shutdown activities, Secunda and Sasolburg renewal, and environmental compliance activities, Clean Fuels II upgrading, and the Mozambique drilling campaign.

The group has recorded long-term environmental provisions of R13.9bn and a short-term provision of R2.6bn at June 30. The environmental obligation includes estimated costs for the rehabilitation of coal mining, oil, gas, and petrochemical sites.

khumalok@businesslive.co.za
mackenziej@arena.africa