Sasol earnings resilient despite oil price decline

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For the first half of the 2016 financial year ending 31 December 2015, earnings attributable to shareholders decreased by 63% to ZAR7.3 billion from ZAR19.5 billion in the prior period.

Headline earnings per share (HEPS) decreased by 24% to ZAR24.28 and earnings per share (EPS) decreased by 63% to ZAR11.97 compared to the prior period.

The Board has declared an interim dividend of ZAR5.70 per share (18,6% lower compared to the prior period).

Profit from operations of ZAR14.9 billion decreased by 50%, on the back of challenging and highly volatile global markets. Average Brent crude oil prices moved dramatically lower by 47% (average dated Brent was US$47 per barrel (/b) compared to US$89/b in the prior period). Furthermore, the price of our basket of commodity chemical prices declined by 23%.

The impact of lower oil and commodity chemical prices was partly offset by a 24% weaker average rand/US dollar exchange rate (ZAR13.62/US$ for the six months ended 31 December 2015 compared with ZAR10.99/US$).

“The decisive actions taken to reposition Sasol through our Business Performance Enhancement Programme, and our low oil price Response Plan, place the organisation in a good position to maintain a strong operational performance, despite the challenging and volatile energy landscape. Given a lower-for-much longer oil price scenario, we have intensified and extended the scope of our Response Plan, by derisking and rephasing certain projects, while prioritising capital for the advancement of our growth projects in Southern Africa and the United States (US),” says David Constable, Sasol Limited President and Chief Executive Officer.

The company-wide BPEP, which is aimed at delivering sustainable cost savings of ZAR4.3 billion by the end of the 2016 financial year, is nearing its completion.

Sasol delivered actual cost savings up to 31 December 2015 of ZAR3.1 billion, which are on track to meet its savings target forecast of ZAR4.0 billion, at an annual exit run rate of ZAR4.3 billion by the end of financial year 2016.

Given an ongoing low oil price environment, we have revised our BPEP savings target to achieve sustainable savings at an exit run rate of ZAR5 billion by the end of the 2017 financial year.

The cash savings target range has increased from ZAR30 billion to ZAR50 billion to between ZAR65 billion and ZAR75 billion. In addition, sustainable cash cost savings are expected to increase to ZAR1.5 billion by the 2019 financial year, up ZAR500 million from the previous guidance.

Cash generated by operating activities decreased by 21% to ZAR26.7 billion compared with ZAR34.0 billion in the prior period.

The Sasol net cash position increased by 15%, from ZAR53 billion in June 2015 to ZAR61 billion as at 31 December 2015, driven largely by the company’s cash conservation initiatives and the favourable impact of the rand/US dollar translation effects.

Actual capital expenditure during the period amounted to ZAR33.6 billion.

Loans raised during the period amounted to ZAR19.2 billion, mainly for the funding of the Lake Charles Chemicals Project.

The Sasol assets and liabilities were significantly impacted by the weaker average rand/US dollar exchange rate, resulting in higher than expected translation differences.

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Bontle Moeng is the Founder and Managing Director of BizNis Africa. Moeng has spent 15 years working in the digital and online media industry across Africa. She applied her trade at True Love magazine prior to discovering her passion for Investment news in key sectors across Africa. Moeng previously worked for ITWeb, Starfish Mobile Technologies, ITNewsAfrica, AVATAR Agency, eNitiate, Global Interface Consulting and Havas Johannesburg. Her primary focus is to provide solid and valuable content on investment opportunities for the ICT, Energy and Mining sectors across Africa. In addition, the online news publication assists global companies to expand their presence in Africa. Email: news@biznisafrica.co.za

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