Sasol earnings resilient despite oil, chemical prices decline

•    Strong operational performance across most of the value chain
•    Secunda Synfuels Operations production volumes up 3%
•    4% increase in total liquid fuels production volumes in our Energy Business
•    Normalised cash fixed costs down 8,4% in real terms
•    Headline earnings per share down 24% to R24,28 despite a 47% decline in oil price
•    Business Performance Enhancement Programme delivered sustainable actual cost savings of R3,1bn and updated target exit run rate of R5bn by end of financial year 2017
•    Response Plan savings of R10,8bn delivered for half year. Target increased to deliver cash savings of between R65bn and R75bn by financial year 2018, given current market volatility
•    Lake Charles Chemicals Project progressing. Reviewing execution to support Response Plan efforts
•    Safety Recordable Case Rate (RCR), excluding illnesses, remained stable at 0,32

Johannesburg, South Africa – For the first half of the 2016 financial year ending 31 December 2015, earnings attributable to shareholders decreased by 63% to R7,3 billion from R19,5 billion in the prior period. Headline earnings per share (HEPS) decreased by 24% to R24,28, and earnings per share (EPS) decreased by 63% to R11,97 compared to the prior period. The Board has declared an interim dividend of R5,70 per share (18,6% lower compared to the prior period).

Profit from operations of R14,9 billion decreased by 50%, on the back of challenging and highly volatile global markets. Average Brent crude oil prices moved dramatically lower by 47% (average dated Brent was US$47 per barrel (/b) compared to US$89/b in the prior period). Furthermore, the price of our basket of commodity chemical prices declined by 23%. The impact of lower oil and commodity chemical prices was partly offset by a 24% weaker average rand/US dollar exchange rate (R13,62/US$ for the six months ended 31 December 2015 compared with R10,99/US$). The average margin for our speciality chemicals remained resilient.

Despite the challenging macroeconomic environment, we continued to deliver a strong operational performance, with increased production volumes and cost increases contained to well below inflation.

The highlights of our operational performance can be summarised as follows:
•    Secunda Synfuels Operations (SSO) production volumes increased by 3% (1 million barrels) compared to the prior period;
•    Total liquid fuels production for the Energy Business increased by 4% (1,1 million barrels) compared to the prior period, as a result of a higher portion of SSO’s volumes being utilised by the Energy Business;
•    The ORYX GTL facility continued to deliver a solid performance, with an average utilisation rate of 90% for the period;
•    Secunda Chemicals and Sasolburg Operations’ production volumes remained in line with the prior period. The increase in volumes from our Fischer-Tropsch Wax Expansion Project (FTWEP) was offset by lower polypropylene (C3) volumes, due to planned commissioning activities associated with the C3 Expansion Project;
•    Sales volumes for the Base Chemicals Business decreased by 13%, given lower C3 volumes available as a result of the commissioning of the C3 Expansion Project and softer demand for certain commodity chemical products; and
•    Sales volumes from our Performance Chemicals Business, normalised for the planned shutdown at our ethylene plant in North America, remained consistent with the prior period.

In addition, Sasol’s profitability was further impacted by the following notable once-off and significant items:

•    net remeasurement items expense of R7,6 billion compared to a R0,2 billion expense in the prior period. These items relate mainly to a partial impairment of our share in the Montney shale gas asset of R7,4 billion (CAD665 million), due to a further deterioration of conditions in the North American gas market resulting in a 16% decline in forecasted natural gas prices. The impairment reduces the carrying value of the asset to approximately CAD559 million. This asset remains highly sensitive to changes in the gas price and accordingly, we estimate that a 5% change in the gas price may result in a change of CAD255 million (approximately R2,9 billion) in the recoverable amount of the asset;
•    a cash-settled share-based payment charge to the income statement of R0,4 billion compared to a credit of R2,9 billion in the prior period; and
•    the reversal of a provision of R2,3 billion (US$166 million) based on a favourable ruling received from the Tax Appeal Tribunal in Nigeria relating to the Escravos Gas-to-Liquids (EGTL) investment. The Nigerian Federal Inland Revenue Service has appealed the decision. The outcome of the appeal process is uncertain, and a possible obligation may arise as a result of any future proceedings. At this time, the value of any potential future obligation cannot be reasonably estimated.

Sasol continued to drive its cost containment programme and reduced cash fixed costs by 4,5% in nominal terms. Excluding the impact of inflation, exchange rates and once-off costs, cash fixed costs reduced by an exceptional 8,4%. This was achieved by an accelerated sustainable delivery of our BPEP and RP programme.

“The decisive actions taken to reposition Sasol through our Business Performance Enhancement Programme, and our low oil price Response Plan, place the organisation in a good position to maintain a strong operational performance, despite the challenging and volatile energy landscape. Given a ‘lower-for-much longer’ oil price scenario, we have intensified and extended the scope of our Response Plan, by derisking and rephasing certain projects, while prioritising capital for the advancement of our growth projects in Southern Africa and the United States (US),” said David Constable, President and Chief Executive Officer, Sasol Limited.

The company-wide BPEP, which is aimed at delivering sustainable cost savings of R4,3 billion by the end of the 2016 financial year, is nearing its completion. Sasol delivered actual cost savings up to 31 December 2015 of R3,1 billion, which are on track to meet its savings target forecast of R4,0 billion, at an annual exit run rate of R4,3 billion by the end of financial year 2016. Given an ongoing low oil price environment, we have revised our BPEP savings target to achieve sustainable savings at an exit run rate of R5 billion by the end of the 2017 financial year.

The comprehensive RP, focusing on cash conservation to counter the lower-for-longer oil price environment, has continued to yield positive cash savings in line with 2016 financial year targets, despite margin contraction and difficulties in placing product in the market. The RP realised R10,8 billion in cash savings for the period, and it is anticipated to achieve the upper end of the 2016 financial year guided range of R10 billion to R16 billion. The RP places Sasol in a strong position to operate profitably within a US$45-50/b oil price environment. However, against the backdrop of a US$30/b oil price, Sasol has updated and extended the scope of the RP to run through at least to the end of the 2018 financial year, ensuring continued balance sheet strength and earnings resilience at notably lower oil price scenarios. The cash savings target range has increased from R30 billion to R50 billion to between R65 billion and R75 billion. In addition, sustainable cash cost savings are expected to increase to R1,5 billion by the 2019 financial year, up R500 million from the previous guidance.

Cash generated by operating activities decreased by 21% to R26,7 billion compared with R34,0 billion in the prior period. Sasol’s net cash position increased by 15%, from R53 billion in June 2015 to R61 billion as at 31 December 2015, driven largely by the company’s cash conservation initiatives and the favourable impact of the rand/US dollar translation effects. Actual capital expenditure during the period amounted to R33,6 billion. Loans raised during the period amounted to R19,2 billion, mainly for the funding of the Lake Charles Chemicals Project.

Sasol’s assets and liabilities were significantly impacted by the weaker average rand/US dollar exchange rate, resulting in higher than expected translation differences.

Full interim 2016 financial results with additional supporting information are available on Sasol’s investor centre at www.sasol.com.