Sasol tanks as it postpones release of results due to Lake Charles weaknesses
DURBAN – Sasol’s share price fell as much as 16 percent on the JSE on Friday morning after the international integrated chemicals and energy company said it had postponed the release of its 2019 results after spotting some weaknesses in its Lake Charles Chemicals Project (LCCP).
The group was expected to release its annual results today, but has shifted the publication date to September 19.
The Louisiana-based LCCP consists of a 1.5 million-ton-per-year ethane cracker and six downstream chemical units. It is under construction near Lake Charles, adjacent to Sasol’s existing chemical operations.
Sasol said the board had decided to delay the announcement of its 2019 financial results until the independent review and external audit has been completed.
“The board therefore expects to announce the 2019 financial results on September 19,” the group said.
Sasol shares declined to R233.93 a share on the JSE in the morning to its lowest levels since 2007, down from Thursday’s closing price of R278.15.
However, the stock recovered in the afternoon and closed 4.73 percent lower at R265.
The company said that a preliminary report from the independent review was presented to the board on August 14, and it contained observations which point to possible LCCP control weaknesses.
“Management and the board will assess such control weaknesses and identify whether any further remedial actions are required,” the group said.
Jordan Weir, a trader at Citadel, said in this case, Sasol needed to delay its results presentation owing to certain international accounting standards and practices that had to be met, and more specifically relating to the control weaknesses raised in the initial independent review which was presented on August 14.
“The growing cost overruns of LCCP are concerning for Sasol, especially when seen together with the preliminary report pointing towards a possible lack of robust controls in the project.
“Geographically, Lake Charles is situated within a relatively volatile ‘weather highway’, often falling directly in the path of tropical storms coming off the Gulf of Mexico.
“Even when up and running, the LCCP is likely to be occasionally disturbed by extreme weather phenomena, raising the possibility of future disruptions in production,” Weir said.
The costs at LCCP have escalated by 50 percent from the initial estimates to almost $13 billion (R198.42bn), as weather and construction delays continue to hamper progress.
However, the board said that it remained confident that the guidance on the earnings ranges provided in the trading statement last month and the previous cost guidance for the LCCP of $12.6bn to $12.9bn remain unchanged.
As at the end of June, overall project completion was at 98 percent, with engineering and procurement activities substantially completed, and construction progress was at 94 percent.
In a trading statement in July, Sasol warned of lower earnings as it wrote down the value of assets in North America and Africa by R18.1bn.
Weir added that if Sasol did not act and address the control weaknesses flagged in the report, sooner rather than later, waning investor sentiment could begin to weigh more heavily on the firm.
“South African investors are well aware that other prominent companies in the recent past have fallen prey to questionable management decisions.
"This is not to say that Sasol falls among their ranks, but the memory of these fallen stocks is all too fresh in investors’ minds,” he said.