Johannesburg - Sasol, the world’s biggest producer of liquid fuel from coal, raised its cost-savings target by two-thirds after writedowns related to lower oil prices and a Canadian shale-gas project cut profit by 17 percent.
The company posted cash savings of R28 billion ($1.9 billion) for the year through June, surpassing the upper end of its target by R12 billion, Johannesburg-based Sasol said in a statement on Monday. It also increased its sustainable savings target for 2019 by R1 billion to R2.5 billion.
Sasol is targeting savings of about R75 billion through 2018 with the aim of operating profitably with oil at $40 to $50 a barrel. While it has delayed a decision on whether to build what would be the US’s first gas-to-liquids plant for $14 billion, the projected cost of the company’s more than half finished Lake Charles chemical project in Louisiana has escalated by almost 25 percent to $11 billion.
“Our cost reduction and cash savings initiatives are exceeding their targets, which places us on a sound footing as we gear up our balance sheet to complete the world-scale, company-changing investment in Louisiana,” joint CEO Bongani Nqwababa said in a statement. “Although the capital expenditure for our Lake Charles Chemicals Project has increased, we remain confident that the fundamental drivers for this investment are sound.”
Read also: Energy, writedowns hurt Sasol
Sasol said its full-year profit before one-time items, known as headline earnings, declined to R25.3 billion, from R30.4 billion a year earlier. Diluted headline earnings per share were R41.40, compared with an average R40.31 estimate of 14 analysts surveyed by Bloomberg.
Sasol shares dropped 2.1 percent to R362.50 as of 11:04 a.m. in Johannesburg trading.
The average price of Brent crude, to which the company’s revenue is linked, was 41 percent lower than a year earlier, Sasol said. Liquid fuels production increased 1 percent from the previous year due to higher output from its Secunda synfuels operations.
The South African fuel producer reported re-measurement expenses totalling R12.9 billion, citing the drop in energy prices. Sasol posted an impairment of 9.9 billion rand on its share of the Montney shale-gas properties in Canada, adding to a writedown of R7.4 billion it took in December, as natural-gas prices dropped during the year.
The company expects a low gas-price environment to continue in the short- to medium-term, it said.
BLOOMBERG