Energy News Monitoring

Sasol Limited is a public company, incorporated under the laws of the Republic of South Africa in 1979 and is an international integrated chemicals and energy company that uses selected technologies source, produce and market chemical and energy products. The main components for the production of fuels and chemical products are coal obtained from Sasol Mining, natural gas obtained from Sasol Exploration and Production International and crude oil purchased from external suppliers. The main components of Sasol´s Performance Chemicals business are kerosene, benzene, ethane, ethylene, oleochemicals, slack wax and aluminium. Feedstocks are purchased externally, with the exception of ethylene which is produced at South African facilities of Sasol und used for alcohol, wax, ammonia, phenolics, and co-monomer production.

Sasol has three main business units: Mining, Exploration and Production International, and the Strategic Business Unit. The company´s Strategic Business Unit has the following segments: Energy (liquid fuel production and sales, piped gas marketing and electricity sales), Base Chemicals (polymer products production and sales, solvents products sales, fertilisers and sales of explosives) and Performance Chemicals (chemical products production and sales).

The Sasol SPDTM process converts natural gas into diesel and other liquid hydrocarbons, which are generally more environmentally friendly and of higher quality to crude oil-derived products, and integrates the following three main technologies which include Haldor Topsøe SynCORTM reforming technology, which converts natural gas and oxygen into syngas; Sasol Low Temperature Fischer-TropschTM (Sasol LTFTTM) technology, which converts syngas into hydrocarbons; and the Chevron IsocrackingTM technology, which converts hydrocarbons into particular products, mainly diesel, naphtha and LPG.

According to the Annual Financial Report total turnover of the company increased by 5.2% from R172.4 billion in 2017 to R181.4 billion in 2018. Earnings before interest, tax and depreciation (EBITDA) increased by 10% to R52 billion when compared to the prior year. Earnings before interest and tax (EBIT) amounted R17.7 billion in 2018 and decreased by 44% from R31.7 billion in 2017. Core headline earnings per share decreased by 6% to R36.03 compared to 2017, when it increased by 6% despite macro-economic and political volatility.  Headline Earnings per Share decreased by 22% to R27.44 in 2018, largely due to depreciation of approximately R16 billion and employee payment expenses of R1.5 billion.

Financial results were negatively impacted by several unplanned Eskom electricity supply interruptions that resulted in lower production volumes, as well as a 6% stronger average rand to the US dollar exchange rate compared to the prior period. Capital expenditure amounted to R53.4 billion and decreased by 12% from R60.3 billion in 2017.

Earnings attributable to shareholders for the year ending 30th June 2018 decreased by 57% to R8.7 billion from R20.4 billion in the previous year. This resulted in earnings per share (EPS) decreasing by 57% to R14.26 compared to the previous year. The stronger average rand/US dollar exchange rate resulted in a much lower profit and earnings per share for the financial year.

Total Mining Operation Business Unit turnover increased by 4% from R18.96 billion in 2017 to R19.79 billion in 2018. EBIT amounted to R5.2 billion in 2018 representing an increase of 41% when compared to the previous year, primarily due to the impact of strike action at its Secunda mining operations in the previous year not being repeated. Production volumes increased to 38.8 Mt for 2018 compared with 37.6 Mt as a result of the previous year's strike. Export of coal benefited from increases in global coal prices during the year and increased by 7% to 3.2 Mt in 2018 compared to 3.0 Mt in 2017. Export sales represented approximately 17% of the total turnover generated by Mining during 2018, compared to 16% in 2017.

Total Exploration & Production International Business Unit turnover increased by 3% from R4.08 billion in 2017 to R4.2 billion in 2018, due to higher oil (Gabon) and gas (Mozambique) prices. EBIT amounted to R558 million compared to earnings before interest and tax of R585 million in 2017. Earnings before interest and tax decreased from a profit of R585 million in 2017 to a loss of R3.7 billion in 2018 due to remeasurement items of R4.2 billion recognized in 2018. Remeasurement items for 30^th June 2018 of R4.2 billion included the PSA impairment of R1.14 billion due to weaker long-term macro-economic assumptions, as well as a result of lower than expected oil volumes, Canada shale gas assets impairment of R2.8 billion due to the further decline in the North American natural gas prices, and other impairments of R32 million (mainly Australia).

Segmentally, the Strategic Business Unit achieved the following financial results in 2018.

Energy segment turnover increased by 8% from R64.77 billion in 2017 to R69.77 billion in 2018, due to increases in the international prices of refined products. EBIT amounted to R14.08 billion in 2018 and increased by R2.86 billion or 26% compared to the previous year. EBIT margins increased from 17% to 20%. The 26% increase in earnings before interest and tax was mainly due to higher crude oil prices.

Base Chemicals segment turnover increased by 4% from R38,414 million in 2017 to R40,091 million in 2018, mainly as a result of higher crude oil prices and favourable conditions prevailing in certain solvent markets. EBIT of R588 million decreased by R6,274 million or by 91% and EBIT margin decreased from 18% to 1%. The decrease of EBIT was due to the impairment of R5,2 billion on the South African chlorvinyls cash generating unit.

Performance Chemicals segment turnover increased by 4% from R67.23 billion in 2017 to R69.77 billion in 2018. EBIT of R8.18 billion decreased by 7% compared to the previous year, mainly due to stronger exchange rates and start-up costs associated with production interruptions at production sites. Sales volumes increased by 1% compared to the previous year with organics and wax driving the improved performance.

Cash generated by operating activities in 2018 decreased by 3% to R42.88 billion in 2018 and by 19% to R44.07 billion in 2017. The decrease in 2018 was largely attributable to purchases of crude oil options of $207 million (approximately R2.7 billion).