JOHANNESBURG - Sasol stock shrugged off news that its profits could take a hit of up to R40billion on escalating impairments, lower oil prices and Covid-19.
Sasol shares firmed 4.5percent on the JSE, disregarding the company’s warning that its losses during the financial year to the end of June had been compounded by a whopping R112bn impairment, mostly at its Lake Charles Chemicals Project (LCCP) in the US.
Sasol said the Covid-19 pandemic, coupled with the crash in the prices of crude oil and chemical products, had weighed heavily on its financial performance during the year under review.
“The impact of the weak macro-economic environment was partly mitigated by a strong cash cost, working capital and capital expenditure performance,” the group said.
Sasol, which is valued at R95bn, said it was expecting to report a headline loss per share during the period that would be more than 100percent lower than the prior year.
It said adjusted earnings before interest, tax, depreciation and amortisation (adjusted Ebitda) were expected to decline by between 17 and 37percent from R47.6bn in the prior year, to between R30bn and R39.5bn.
“This results from an 18percent decrease in the rand-per-barrel price of Brent crude oil, coupled with much softer global chemical and refining margins, impacting our gross margins adversely, especially during the second half of the 2020 financial year,” said Sasol. The company attributed the loss per share to the decrease in the adjusted Ebitda and notable non-cash adjustments to earnings.
“The largest contributor relates to impairments of a number of cash-generating units following the decline in the long-term macro-economic outlook, and the fair value impact following the commencement of partnering discussions for our Base Chemicals assets in the US,” said the company.
Sasol said R71.3bn of its write-downs had been impaired at its Base Chemicals in the US, R12.5bn across the energy portfolio and R27.7bn at Performance Chemicals, primarily relating to its share of ethylene producing assets in the US.
The group said it was reviewing its footprint and was seeking to find a partner at the LCCP to avoid a potential $2bn (R35bn) rights issue after a nosedive in the oil price and the impact of Covid-19 pandemic weighed on the company’s ability to pay its debt.
Sasol is faced with a debt burden after the cost of building the LCCP ballooned to nearly R13bn, about 50percent more than the original price. Joint chief executives Bongani Nqwababa and Stephen Cornell quit their positions last year as a result of ongoing issues at the site.
Vesact Asset Management portfolio manager Michael Treherne said Sasol’s losses were mostly non-cash items, which made investors feel a bit better, saying that of the R112bn impairment, about R100bn was for the LCCP.
Treherne said the market knew that impairments were coming though, based on the prices that interested parties were willing to pay for a stake in the Lake Charles operation.
“It was clear to the market that Sasol spent too much on building LCCP, and they are now right-sizing this asset on their books,” Treherne said. “Given that the market knew it was coming is the reason that the share price didn’t react much.”
Treherne said the other losses were due to hedging operations. “Hedging adds stability to the business, so it is not a huge worry. Some quarters Sasol will take a loss on their hedge and other quarters they will make a profit,” Treherne said.
The group will announce its annual results on Monday.
Sasol shares closed 4.44percent higher at R158.37 on the JSE yesterday.
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