Sasol cites economic volatility, Transnet and Eskom issues for plunge in interim profits

Sasol recorded a R3.9 billion in impairments from the Secunda liquid fuels refinery for the first half year to December 31. Photo: Reuters

Sasol recorded a R3.9 billion in impairments from the Secunda liquid fuels refinery for the first half year to December 31. Photo: Reuters

Published Feb 27, 2024


Petrochemicals giant Sasol has cited economic volatility as well as power supply and logistics constraints for its 34% lower profit for the first half year to December 31, a period in which it also recorded R3.9 billion in impairments from the Secunda liquid fuels refinery.

Impairments in Secunda have been remeasured from R8.1bn a year earlier.

The R3.9bn suffered on Secunda brings up the total for Sasol’s remeasured items – including impairments on Chemicals Africa – to R5.8bn compared to R6.4bn.

The impairments on Secunda have been driven by a further deterioration assumed on the macroeconomic outlook, including Brent Crude oil and electricity prices, which have driven up the full amount of capital expenditure incurred during the period of the facility.

An impairment of R1.2bn has also been incurred on Chemicals Africa Chlor-Alkali & PVC and polyethylene due to lower selling prices associated with reduced market demand.

Headline earnings per share (HEPS) in Sasol for the six-month period under review have lowered by 34% compared to the same period a year ago to R20.37 per share. This was after earnings before interest and tax (Ebit) of R15.9bn also fell by R8.3bn, or 34%, over the same period.

“The variance to the prior period is mainly due to lower revenue and lower gains on the valuation of financial instruments and derivative contracts, offset by lower chemical feed-stock prices in Europe, Asia and the United States of America,” Sasol said.

The company’s shares on the JSE traded weaker after the announcement of the plunge in profits, softening as much as 5% in morning trade before narrowing down the losses to 1.79% in afternoon trade at around R143.39.

Despite the fall in profitability for the period, Sasol declared an interim dividend of R2 per share.

“Sasol’s performance continued to be negatively impacted by the continued volatile macroeconomic environment, with weaker oil and petrochemical prices, unstable product demand and continued inflationary pressure,” the company said.

Although there had been some operational improvements in South Africa, persistent underperformance of state-owned enterprises involved in Sasol’s value chain such as Eskom and Transnet, as well as a weaker global growth outlook, “continue to” affect its business performance.

Revenue for the period declined from R149.8bn to R136.3bn on the back of “lower chemical product prices” across all regions.

“Our South African suppliers and customers continue to face business disruptions due to challenges at Eskom and Transnet. Sasol continues to engage with the South African government to assist both Eskom and Transnet to address the associated energy and supply chain constraints,” it said.

However, there was an improvement in Sasol’s energy business as a result of “higher production and productivity” owing to the implementation of the operational mitigation plans.

At the company’s SO business, increased production volumes were recorded. In the prior year, the business suffered a complete shutdown compared to a phased shutdown during the half-year period ended December 31, 2023.

Despite this, the rand oil price and inflationary pressures continued to impact Sasol’s liquid fuels segment. It had started the the roll-out of its full potential programme at Shondoni and Thubelisha collieries during the period under review.

Challenging market conditions and macroeconomic weakness, especially in China, persisted for the chemicals division, with customer destocking negatively impacting global demand.

“The average sales basket price for H1 FY24 was 24% lower than H1 FY23, with the decrease driven by a combination of lower oil, feedstock and energy prices and the aforementioned weak market demand,” Sasol explained.

Chemicals volumes for the period were, nonetheless, 4% stronger for the period, propelled by higher ethylene and polyethylene sales in the US as well as improved production and supply chain performance in Africa, offset by continued lower demand in Eurasia.

Liquid fuel sales volumes only marginally firmed up by 1% compared to the prior contrasting period owing to an oversupply in the South African market.

Meanwhile, the sales volume outlook for the year remains in line with Sasol’s previous market guidance of between 51 and 54 million barrels, with the decline in product prices over the half year end resulting in a lower standard cost of stock, which may impact variable cost negatively.