Sasol feels the pain

Sasol’s results for the year through June 2024 revealed a substantial loss for its 2024 financial year due to an impairment loss of R74.9 billion.

These results were not unexpected for shareholders, as the company previously warned that it would be posting a loss for the full year.

In its results today, Sasol reported 5% turnover growth, going from R289.70 billion in 2023 to R275.11 billion in 2024.

Despite this growth, the company’s earnings for the year plummeted. It swung from a profit of R9.33 billion in 2023 to a loss of R44.25 billion in 2024.

Its EBITDA also swung to a loss of R27.31 billion – an over 220% decrease from the prior period. Basic earnings per share fell from a profit of R14 per share in 2023 to a loss of R69.94 in 2024.

Sasol explained that this was mainly due to asset impairment, lower earnings before interest, tax, depreciation, and amortisation, and translation losses compared to gains in the prior year, together with lower derivative gains compared to the prior year.

Notably, an impairment loss of R74.9 billion was recorded, mainly relating to the following impairments:

• Chemicals America Ethane value chain (Alcohols, Alumina, Ethylene Oxide and Ethylene Glycol) cash-generating unit (CGU) of R58.9 billion. The impairment is driven mainly by a lower for longer pricing and softer market conditions.
• A total of R5.3 billion relating to the Chemicals Africa Polyethylene, Chlor-Alkali & Polyvinyl Chloride, and South African Wax value chain CGUs, of which R1.2 billion was impaired at 31 December 2023. 
• The further impairment at 30 June 2024 relates to the Polyethylene CGU, which is oversupplied and experiencing reduced demand in the global market. 
• The South African Wax value chain CGU remains fully impaired.
• Secunda liquid fuels refinery CGU of R7.8 billion, of which R3.9 billion was impaired at 31 December 2023. 
• The CGU was fully impaired at 30 June 2023 and remains fully impaired at 30 June 2024.

As of 30 June 2024, Sasol’s total debt was R117.8 billion compared to R125.6 billion at 30 June 2023. 

In October 2023, Sasol issued senior unsecured notes worth R2.37 billion in the local debt market under the R15 billion Domestic Medium Term Note (DMTN) programme, and in March 2024, R27 billion was drawn on the Revolving Credit Facility (RCF). 

A R28 billion US dollar bond was repaid in March 2024, and partial settlements of R5.5 billion were made on the RCF in May and June 2024.

Sasol’s cash generated by operating activities decreased by 19% to R52.3 billion compared to the prior year. 

Capital expenditure, excluding movement in capital project-related payables, amounted to R30.2 billion compared to R30.9 billion during the prior year. 

The company’s capital spending for the year relates mainly to shutdown activities, Secunda and Sasolburg renewal and environmental compliance activities, Clean Fuels II upgrading, and its Mozambique drilling campaign.

These poor results led Sasol’s board to approve a change in the company’s dividend policy. 

Its dividend policy was based on 2.5 times to 2.8 times core headline earnings per share (CHEPS), with a dividend step up to 2.5 times CHEPS when net debt is sustainably below $4 billion. 

However, in these results, the disconnect between headline earnings and cashflow generation, as well as elevated leverage levels, necessitated a revision to the company’s dividend policy.

The revised policy is based on 30% of free cash flow generated, provided that net debt (excluding leases) is below $4 billion on a sustained basis.

Since the company’s actual net debt for 2024 exceeds the net debt trigger in the new dividend policy, Sasol did not declare a dividend for 2024.