Sasol takes a hit from crumbling South African SOEs

Sasol reported a significant drop in basic earnings for its 2023 financial year and pointed to the underperformance of state-owned enterprises in South Africa as a significant contributing factor.

Sasol released its results for the year ended 30 June 2023 today, which revealed mixed results for the petrochemicals major.

Sasol’s EBIT declined by 65% for the 2023 financial compared to 2022. The company said this was mainly due to the impairment of some assets, the inflationary impact on costs, and the softening of the Brent crude oil price and tighter refining margins in the latter part of the year.

Sasol said chemicals basket prices were declining throughout the year, “and while we have recently seen some respite with lower feedstock and energy prices, gross margin and global demand remained depressed, particularly in our American and Eurasian segments”.

The company’s basic earnings per share also declined by 78% from R62.34 in FY2022 to R14.00 in FY2023.

However, in the period, Sasol’s headline earnings and headline earnings per share increased by 14% and 13%, respectively.

The company’s operating profit increased 8% from the prior year. Sasol benefitted from gains on the translation of monetary assets and liabilities and the valuation of financial instruments and derivative contracts of R6 billion compared to R17.6 billion losses in 2022.

In addition, remeasurement items contributed a net loss of R33.9 billion compared to a net gain of R9.9 billion in 2022.

The remeasurement items for 2023 mainly relate to the following: 

  • The full impairment of the South African wax CGU of R0.9 billion, the full impairment of the Essential Care Chemicals CGU in Sasol China of R0.9 billion, and the complete reversal of impairment recognised in 2019 on the Tetramerisation CGU in Lake Charles of R3.6 billion; and 
  • The Secunda liquid fuels refinery CGU impairment of R8.1 billion at 31 December 2022 after being negatively impacted by an update in macroeconomic price assumptions, including higher electricity price forecasts and lower gas selling prices. 
  • An additional impairment of R27.2 billion was recognised for this CGU, resulting in it now being fully impaired. 

In addition, profit on disposal of businesses of R8.5 billion was recorded in 2022 compared to R0.7 billion for 2023.

Sasol said its financial results for the year ended 30 June 2023 were impacted by the “volatile global economic landscape and the underperformance of state-owned enterprises in South Africa, which continue to impact both our Energy and Chemical businesses”. 

However, the company said this impact was somewhat offset by a weakening of the rand/US dollar exchange rate.

These results saw Sasol cut its final dividend by 32% compared to the year before. The company declared a dividend of R10 per share.