Sasol expects 74% earnings drop due to failing SOEs

Sasol informed shareholders today that it expects its basic earnings per share to decrease by between 74% to 84% for its 2023 financial year.

The company said its financial results for the year ended 30 June 2023 were impacted by “operational challenges and a volatile global economic landscape”.

This landscape included weaker global economic growth, higher inflation, depressed chemicals prices and higher feedstock and energy costs.

“The softening of the Brent crude oil price and refining margins in the latter part of the 2023 financial year was offset by a weakening of the rand/US dollar exchange rate,” the company said.

“Chemicals basket prices were on a declining trend during 2023, and while we have seen some respite in lower feedstock and energy prices, gross margin and global demand remain depressed, particularly in our American and Eurasian operations.”

Sasol said its performance was further impacted by the underperformance of state-owned enterprises in South Africa, which have constrained our supply chains and resultant sales volumes.

The company expects the following changes to its earnings compared to the prior year:

  • Basic earnings per share (EPS) are expected to be between R10.26 and R16.49 compared to the prior year EPS of R62.34 – representing a decrease of 74% to 84%.
  • Headline earnings per share (HEPS) are expected to be between R49.47 and R56.13 compared to the prior year HEPS of R47.58 – representing an increase of 4% to 18%.
  • Core HEPS (CHEPS) are expected to be between R41.54 and R51.14 compared to the prior year CHEPS of R68.54 – representing a decrease of 25% to 39%.

Sasol said a notable improvement in its operational performance was realised in the second half of the 2023 financial year, “underpinned by focussed mitigation plans to address the production instabilities experienced earlier in the year”.

The company’s adjusted EBITDA for the year ended 30 June 2023 is expected to decline by 2% and 16% from R71.8 billion in the prior year to between R60.6 billion and R70.6 billion.

In this period, the company had unrealised gains of R5.8 billion on the translation of monetary assets and liabilities and the valuation of financial instruments and derivative contracts.

It also reported a net loss of R33.9 billion on remeasurement items, mainly due to impairments.

The company saw a full impairment of its South African wax cash-generating unit (CGU) of R0.9 billion and Essential Care Chemicals CGU in Sasol China of R0.9 billion, and reversal of the full impairment processed in 2019 on the Tetramerisation CGU in Lake Charles of R3.6 billion.

It also saw a full impairment of the Secunda liquid fuels refinery CGU at 30 June 2023 of R35.3 billion in the company’s Fuels segment. 

“The Secunda chemicals CGUs recoverable amount remains above the carrying value given the higher value products that are produced,” Sasol said. 

“The impairment is mainly a result of the increase in the weighted average cost of capital (WACC) rate on the back of higher global interest rates and its associated impact on the cost of debt, higher feedstock cost assumptions, and a revised production profile based on the emission reduction roadmap (ERR).” 

Sasol said it had made notable progress with the implementation of its ERR despite mounting external and internal pressures on the business. 

“Optimisation of the ERR is ongoing, and there are a number of technology and feedstock solutions being evaluated. However, the maturity thereof needs to be progressed before it can be incorporated in the impairment assessment.”