Sasol is an international chemicals and energy company that produces and markets chemical and energy products. The major part of their operations is located in South Africa. The Company operates a number of plants and facilities for the manufacture, storage, processing and transportation of chemical feedstock, products and wastes.
Sasol has three main business units: Mining, Exploration and Production International, and the Strategic Business Unit. The Company´s Strategic Business Unit has three main segments: Energy (liquid fuel sales, piped gas and electricity sales), Base Chemicals (polymer products production &sales, sales of solvents products, fertilisers and explosives) and Performance Chemicals (sales of products globally, directly to business customers (B2B)). 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 the South African facilities of Sasol.
According to the Annual Financial Report, total turnover of the Company increased by 12% from R181.4 billion in 2018 to R203.6 billion in 2019, mostly due to exchange rate effects and higher product prices for crude oil.
Earnings before interest and tax (EBIT) amounted R9.7 billion in 2019 and decreased by 45% from R17.7 billion due to higher remeasurement items of R18.6 billion (US$1.3 billion) recorded in 2019, resulting from softer chemical prices as well as the higher than anticipated capital spend on the LCCP (Lake Charles Chemicals Project). To compare, in 2018 EBIT decreased by 44% from R31.7 billion in 2017. Adjusted EBITDA decreased by 9%, compared to 2018 due to lower chemical product prices and higher LCCP operating cost.
Gross margin percentage decreased by 2% compared to 2018 driven by a softer macro environment, negatively impacting supply-demand activities, especially in the Chemicals business. The Energy business benefitted from higher crude oil prices and higher diesel differentials.
Operating costs and expense increased by 16% from R140.2 billion in 2018 to R176.3 billion in 2019. Materials, energy and consumables used in 2019 amounted to R90.59 billion, an increase of R13.98 billion, or 18%, compared with R76.60 billion in 2018, which increased by 7% from R71.44 billion in 2017. The increase in these costs between 2019 and 2018 was due to the higher processed volumes of oil, higher costs (higher Brent crude prices) and a weaker rand/US dollar exchange rate.
Earnings attributable to shareholders for the year ending 30th June 2019 decreased by 51% to R4.3 billion from R8.7 billion in the previous year. Compared to 2018, earnings attributable to shareholders decreased by 57% to R8.7 billion from R20.4 billion in 2017. This resulted in earnings per share (EPS) decreasing by 51% to R6.97 in 2019 from R14.26 in 2018.
Total Mining Operation Business Unit turnover increased by 5% from R19.8 billion in 2018 to R20.9 billion in 2019. EBIT of R4.7 billion represents a decrease of 10% compared to 2018, mainly as a result of lower sales volumes, higher rehabilitation provisions and increased capital expenditure.
The total Exploration & Production International Business Unit turnover increased by 23% from R4.2 billion in 2018 to R5.2 billion in 2019, due to higher oil (Gabon) and gas (Mozambique) prices, a weaker rand/US dollar exchange rate and higher volumes in Gabon. EBIT of R1.2 billion (excluding remeasurement items of R1.98 billion) increased by R897 million compared to EBIT of R269 million in 2018 (excluding remeasurement items of R4.24 billion). Including remeasurement items, EBIT represented a loss of R0.9 billion in 2019, compared to R3.7 billion losses in 2018.
Segmentally, the Strategic Business Unit achieved the following financial results in 2019. Energy segment turnover increased by 20% from R69.8 billion in 2018 to R83.8 billion in 2019, mainly due to the impact of higher Brent crude oil prices, higher volumes sold, and the weaker rand/US dollar exchange rate. EBIT of R16.6 billion increased by R2.5 billion or 18% compared to 2018, mainly due to higher crude oil prices, the impact of weaker rand/US dollar exchange rates and higher liquid fuel sales volumes. Gas sales volumes were 3% higher compared to 2018.
Base Chemicals segment turnover increased by 11% from R43.95 billion in 2018 to R48.81 billion in 2019, mainly as a result of the weaker rand/US dollar exchange rate. EBIT decreased by R2.3 billion or 256% from R918 million in 2018 to a loss of R1.43 billion in 2019. The decrease in EBIT was due to additional operating losses due to the LCCP incurring depreciation and cash fixed cost.
Performance Chemicals segment turnover increased by 5% from R64.88 billion to R68.29 billion, mainly due to a weaker exchange rate. The business recorded a loss of R7.04 billion before interest and tax following impairments of US assets. After adjusting for remeasurement items and translation movements of the closing exchange rate, EBIT decreased by 23% from R7.91 billion to R6.09 billion, mainly as result of start-up costs associated with growth projects. Sales volumes decreased by 3% compared to 2018, mainly driven by some lower sales of commodity products.
Cash generated by operating activities in 2019 increased by 20% to R51.40 billion, largely attributable to an increase in crude oil prices, decreases in working capital, as well as a weaker average rand/US dollar exchange rate of R14.20/US$ for 2019, compared to R12.85/US$ for 2018. For comparison, cash generated by operating activities in 2018 decreased by 3% over the year.