JOHANNESBURG - Petrochemicals giant Sasol has reported an R91.3 billion annual loss for the year ended June on plummeting oil prices. The group said that the combined effects of unprecedented low oil prices, destruction of demand for products and impairments of R111.6 billion resulted in a loss of R91.3 bn for the year compared to earnings of R6.1 billion in the prior year.
However it said that within a volatile and uncertain macroeconomic environment, its foundation businesses still delivered resilient results with a strong volume, cash fixed cost and working capital performance.
“The 18 percent decrease in the rand per barrel price of Brent crude oil coupled with much softer global chemical and refining margins negatively impacted our realised gross margins especially during the second half of the year,” said Sasol.
Debt increased to R189.7 bn compared to R130.9 bn a year earlier with approximately R174.6 billion (US$10.1 billion) denominated in US dollars. Sasol said its balance sheet was highly geared, requiring a reduction in US dollar-denominated debt in order to achieve a targeted net debt to earnings before interest, taxation, depreciation and amortisation (Ebitda) of less than 2 times and gearing of 30 percent, which we believe would be sustainable with oil at approximately US$45 per barrel.
“Through our comprehensive response plan we have taken immediate steps to reset our capital structure by targeting to generate at least US$6 billion by the end of 2021,” said Sasol.
In March Sasol announced a set of measures to cushion the impact of the oil price plunge including plans to enter into partnerships for its base chemicals business in the United States, raising $2 billion through asset sales, generating $2bn from self-help measures and a possible US$2bn rights issue.
The company said it would continue to suspend the dividend given its current financial leverage and the risk of a prolonged period of economic uncertainty.
“This will allow us to continue to protect our liquidity in the short-term and focus on reducing leverage in order to create a firm platform to execute our strategy and drive long-term shareholder returns. In addition, in accordance with the covenant amendment agreement with lenders, we will not be in a position to declare a dividend for as long as net debt to Ebitda is above 3 times,” said Sasol.
The group said its energy business's gross margin percentage had decreased from 43 percent in the prior year to 38 percent due to the significant impacts of supply and demand shocks that led to lower crude oil prices and product differentials.
“We expect that oil prices will remain low for the next 12 to 18 months as the impact of Covid-19 becomes better understood. Oil markets also continued to remain exposed to shifts in geopolitical risks as well as supply and demand movements,” said Sasol.
The group’s Lake Charles Chemical Project (LCCP) in the US delivered improved earnings before interest, taxation, depreciation and amortisation (Ebitda)
performance in the second half of the year of approximately R100 million (US$8 million), compared to a loss before interest, taxation, depreciation and amortisation of R1.1 billion recorded in the first half of the year.
Sasol said that its earnings were further impacted by R3.9bn in additional depreciation charges and approximately R6bn in finance charges for the year as the LCCP units reached beneficial operation.
BUSINESS REPORT