Chemical engineer Simon Baloyi has made the ultimate Sasol journey – from bursary student to CEO. In recent years, Baloyi was part of the executive team faced with a plunging share price (R300 to under R20 in first three months of 2020) and the subsequent forced sale of assets to slash its excessive debt. In this interview with BizNews editor Alec Hogg, Sasol’s new CEO shows those lessons have been well learned: his priority is to build a bullet-proof balance sheet and ensure highly disciplined allocation of capital, an area where Sasol has not shone in the past decade and a half. It helps his cause that the Sasol board has tempered its ambitions – now prioritising local opportunities over the offshore Hail Marys whose massive cost overruns ran up huge debt. An encouraging story, a must-watch for millions of investors with direct exposure to South Africa’s coal-to-fuel and chemicals champion.
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Highlights from the interview
In this interview, Alec Hogg speaks with Simon Baloyi, the Chief Executive of Sasol, about the company’s current strategies and future direction. Baloyi discusses Sasol’s approach to managing its debt, highlighting a $4 billion threshold below which the company will resume paying dividends. He anticipates that Sasol will be able to meet this target by FY25, driven by strong cash generation from operations.
Baloyi also emphasizes the importance of maintaining a balanced portfolio between chemicals and fuels, noting that this balance provides a natural hedge against market fluctuations. He discusses the company’s plans for future investments, particularly in South Africa, as Sasol transitions from coal to more sustainable energy sources. This transition is essential to maintaining Sasol’s role as a cornerstone of the South African economy, contributing significantly to GDP and employment.
Baloyi expresses confidence in the new leadership team, including the recent appointment of CFO Walt Burns, and the energy and fresh perspectives they bring to the company. He believes that with the right strategies and leadership, Sasol is well-positioned to navigate challenges and seize future opportunities, ultimately transforming into a sustainable energy giant.
Edited transcript of the interview ___STEADY_PAYWALL___
00:00:09:07 – 00:00:37:06
Alec Hogg
Recently appointed CEO of Sasol, Simon Baloyi, joins us today to discuss one of the most widely held shares among South Africans and one of the most important companies for the South African economy. What’s happening at Sasol? Where is he going to be taking it? Will the mistakes of the past be avoided?
00:00:37:08 – 00:00:54:13
Alec Hogg
Mr. Baloyi, good to talk with you. You are a chemical engineer, so you’re certainly someone who has excelled in the past. You’ve been with Sasol for quite some time. Did you go straight into Sasol from university?
00:00:54:15 – 00:01:03:00
Simon Baloyi
Yes, thank you. I had the privilege of receiving a Sasol bursary, so I’ve been with Sasol for more than 20 years.
00:01:03:02 – 00:01:25:22
Alec Hogg
And the elevation to the CEO position—In bygone years, Sasol liked to have engineers running the place, but that hasn’t been the standard lately. Is this something that you anticipated? In other words, were you on some kind of program to become the CEO one day?
00:01:26:00 – 00:01:50:03
Simon Baloyi
No, I didn’t anticipate it. I think, as far as it goes, you just have to dedicate yourself to what you do. But I had a fantastic career at Sasol. I worked all the way from operations in various functions. I managed multiple geographies and ran whole business units. At some point, I was running a chemical business unit.
00:01:50:03 – 00:02:15:10
Simon Baloyi
So I had extensive experience within the company. When this role came up, I raised my hand because, at that time, I was an executive looking after our entire operations in southern Africa, including our projects, research, and technology. So I definitely had deep insights into the organization and how it works.
00:02:15:12 – 00:02:37:18
Alec Hogg
And you certainly have been through the fire. Some of us remember very well how Sasol’s share price plummeted to around R20 per share. We bought shares for the business portfolios, and I was still getting lots of emails then saying, “Are you crazy? This share price is going to zero.” In the Covid era, especially as a senior executive, that must have been a pretty tough time.
00:02:37:19 – 00:03:07:03
Simon Baloyi
Yeah, it was a tough time, but good on you for buying it. As I look at the prices today, maybe you should buy again. When the share price was at R20, we definitely felt it, especially the employees of Sasol. That’s one thing about our people in this organization—there’s a deep connection and a deep love for this wonderful company with a fantastic history.
00:03:07:03 – 00:03:27:18
Simon Baloyi
Everyone who works here feels that history because it’s such an innovative company. However, in 2020, when the share price went down to R20, what impressed me was the spirit of the employees. I was part of top management at that time. We came up with a plan to help rescue the company, whether through asset sales or raising money by divesting a portion of the LCCP—just 50% of the ethane cracker and downstream units, while maintaining all the derivatives units.
00:03:27:20 – 00:03:49:12
Simon Baloyi
What impressed me most was the employees’ response. We did something that even surprised me. I told my team in chemical operations that not only were we not going to get an increase, but we were going to ask everyone to do a salary sacrifice, meaning a portion of their salary would be forfeited. It was voluntary, and yet we had 100% participation. That says something about the spirit of the people in this great company, and it’s something I will always carry with me.
00:04:49:14 – 00:04:08:06
Alec Hogg
Extraordinary, extraordinary. And it’s just as well that you have that spirit because you’re also carrying a lot of South Africans with you. There are 150,000 shareholders in Sasol ordinary shares, 200,000 shareholders in the BEE shares, and 33% of your equity is held in unit trusts, which adds a few more million to that shareholder base. Do you feel the pressure?
00:04:08:10 – 00:05:18:04
Simon Baloyi
Yeah, of course, I feel the pressure. I mean, this is other people’s money that you’re working with. We definitely respect our shareholders’ capital, and it is my intention, together with my management team, to create shareholder value. Learning from everything we’ve been through, I believe it’s our resilience and innovative spirit that helped us overcome challenges. And I think what we are able to do now, we will be able to turn those challenges into opportunities. Since I took over in April—it’s already been five months—you can say we’ve hit the ground running. We’ve streamlined the organization and changed the operating model completely.
Read more: Sasol streamlines business, sees volume improvement across operations
00:05:35:16 – 00:06:04:04
Simon Baloyi:
So, I’ve separated the international chemicals, so that’s now running by itself, even though I still have oversight. But you’re not mixing up the chemical businesses. So, you’ve got the international chemical business, and then you’ve got the South African business, which is mainly focused on two domains: the coal and gas business, whereas the international business involves assets like ethane, ethylene, and some hydrocarbons and paraffin that we take from there. So, it’s completely different. I mean, geographically, you’re looking at Eurasia and Southern Africa. This approach will help us as we move forward because we must ensure that these businesses don’t subsidize each other, but everyone is dependent on itself.
00:06:04:04 – 00:06:17:06
Alec Hogg:
That investment in the offshore arena has been very expensive. It’s landed Sasol with a lot of debt. I guess, with hindsight, there might be a few people saying, “Oh, maybe it wasn’t such a good idea,” but you do have it now in the portfolio—Lake Charles in Louisiana, the gas-to-liquids operations in Qatar. Are you looking to do more international investments?
00:06:17:08 – 00:07:05:10
Simon Baloyi:
I think, for now, if you look at all our businesses globally—let me just step back a little bit into our strategy. So, the strategy over the next three years is what I call ‘strengthen and grow.’ We need to strengthen the foundation, whether it’s locally or abroad. We have to make sure that businesses are running at full potential and generating their maximum possible cash. We’re not there yet. I mean, in some of the businesses, we are at 90%, but in some, especially traditionally, we are usually much lower than where I want us to be. So, the immediate focus is to make sure that all businesses generate cash. Once we’ve achieved full cash generation, we will then focus on sustaining capital to ensure that we maintain our businesses from an integrity and safety point of view and continue doing that.
00:07:05:13 – 00:07:34:13
Simon Baloyi:
Then, we’ll start taking the remaining capital, and that’s when the real competition for capital starts. Let’s leverage our balance sheet. I’m glad that we could launch a new dividend framework and policy that will allow us to do that, so we can slowly start deleveraging to achieve sustainable debt levels. But there needs to be a healthy competition between growth and returning cash to shareholders. That growth has to be disciplined growth. We have to learn from all the lessons we’ve had in our recent past to ensure that as we continue to invest, whether it’s locally or internationally, it depends on opportunities. It has to be disciplined growth.
00:07:34:15 – 00:08:01:02
Simon Baloyi:
So, I mean, the first port of call internationally would be to stabilize our existing operations. We’ve already started that on the 1st of April with the appointment of a new executive there. We have to make sure we strengthen those businesses to be sustainable by themselves. If we do that, and these businesses generate money, they will definitely have the carrying capacity for future international growth, but that’s not a short-term focus. It’s about stabilizing those businesses first.
00:08:01:02 – 00:08:24:08
Alec Hogg:
You talk about learning lessons from the past. The big criticism about Sasol in the investment community is your allocation of capital. Over the last 15 years, this has been questionable. What lessons in particular will you be learning?
00:08:24:08 – 00:09:52:05
Simon Baloyi:
If you look at our past, some major capital interventions, some projects that we’ve undertaken—like the Secunda Projects in South Africa—have gone well. We’re busy with a $1 billion project in Mozambique that has also gone well. So, in projects that were contained, we did those in an acceptable manner. However, the latest project in the US was too deep and too big for us. The key lessons for me and the team are around partnership. Sometimes, the project itself is a fantastic asset once it’s finished, but the cost component is not something we want to repeat. The only way to mitigate against that is to ensure we don’t overcommit ourselves, and that’s a lesson we’re taking forward.
00:09:52:05 – 00:10:15:15
Alec Hogg:
Now, that’s a fantastic insight. I guess another lesson is promoting from within, rather than bringing in international executives. Everyone knows the story there. Mr. Baloyi, just looking forward to the potential oil reserves in South Africa—we’ve been doing a lot of work on the gas resources. One of the members of parliament, James Lorimer, reckons our gas is potentially another diamond or gold discovery opportunity.
00:10:49:23 – 00:11:17:05
Alec Hogg:
Yet not a heck of a lot has happened on this front for a variety of reasons. From Sasol’s point of view, one would presume that you’d be well-placed, whether it’s onshore gas in the Karoo, offshore gas in the Southern Cape, or indeed off the west coast. If you look at the Orange River mouth to the north, on Namibia’s side, it’s full of activity. To the south, on South Africa’s side, it seems to be pretty quiet. How are you looking at or seeing the potential here?
00:11:17:05 – 00:11:43:11
Simon Baloyi:
Yeah. I mean, when I look at this country, not only will I talk about other natural resources, this country has fantastic potential. I mean, its people and diverse cultures. I mean, it’s a massive boost for countries with such diverse thoughts and cultures that, somehow, we find a way to bring it together and make it work. I mean, I think for some of the countries, Durban, we actually—most of the country—believe it or not, people can learn from us in terms of how to, I mean, almost like this.
00:11:43:11 – 00:12:03:03
Simon Baloyi:
If you look at the natural resources, not only is it the gold, the minerals, I mean, the renewable resources, I mean, you remember the country’s almost in the top four, top five in terms of sun. And then there are also these hydrocarbon resources because you can see, I mean, if there is gas in Mozambique, yes, in Mosul, Gai, there is gas in Mossel Bay, and then there is gas in the Orange Basin. You can see there are resources.
00:12:03:03 – 00:12:25:12
Simon Baloyi:
I mean, there’s even at some point in time gas—it’s even thought we have gas in the Karoo, which we do next. So the country does have resources, and I know the Department of Mineral Resources is going to work hard to start enabling that. However, from Sasol’s side, the initial focus is on LNG because we must, I’m just worried that there is gas running out in the south, and you have these resources that do take almost 5 to 10 years to develop.
00:12:25:18 – 00:12:48:18
Simon Baloyi:
However, in 2 to 3 years, we do need to make sure LNG is already running in the country to keep the current industries going. Otherwise, you’ll go into another crisis. But those, I mean, just foresee fantastic opportunities and partnerships will probably develop where those resources can be exploited. But we’ll take it from there. This will be purely based on our strategy and how we want to invest our money.
00:12:48:20 – 00:13:14:08
Simon Baloyi:
I spoke about transforming Sasol. South Africa’s predominantly a coal company. So I need to make sure that by 2035, 2030, the company has transformed and is aligned with the energy landscape of the country. So we are also going to focus on gas. I mean, everyone sees gas as a transitional fuel. We’ll see. We’ll start with LNG, and if opportunities arise based on stable capital allocation, we’ll look into those. But that has to be based on affordability, where the company is going, and what we can also offer.
00:13:14:08 – 00:13:49:20
Alec Hogg:
It would appear from the outside that you have a significant advantage in the story that you’ve just told us because of your gas-to-liquid plant in Qatar. So you know how to use gas. And of course, you also have this feedstock coming in from Mozambique. You did, however, mention that that’s running out.
00:13:49:22 – 00:14:31:14
Simon Baloyi:
Yes. I mean, if you look at our capabilities, that’s extraordinary. I mean, technical capabilities. We did explore and find gas in the south of Mozambique—that’s onshore. Offshore is a different story. We don’t have lots of strengths there, but that doesn’t mean we can’t partner with others. However, like I said, that will not be our immediate focus area. Our immediate focus area is to turn our technical resources to make sure the country has gas in relation with us, as well as the DTI, because for me, the stability of gas supply to the country is extremely important.
00:14:31:14 – 00:14:57:08
Alec Hogg:
Just help us a little to understand Mozambique. Is the gas running out there?
00:14:57:08 – 00:15:40:12
Simon Baloyi:
Only in the south. So in the south of Mozambique, where we have gas reserves, that gas is now running out. So we don’t have additional resources there. Mozambique has fantastic opportunities in the north, but that is also likely to be LNG because from where our plant is to the north is a 2,000-kilometer-plus distance. So you’re not going to build a pipeline that long. So that is likely to be LNG. So, I think if we already start investing or if others invest in a terminal to bring LNG, it will also unlock that resource.
00:15:40:12 – 00:15:56:10
Simon Baloyi:
And that’s a fantastic resource. I mean, those are equivalent to the resources that Qatar has, which shows you the potential of gas in the region. And that is a resource that’s also very, very easy to explore. So, I think for us, it’s exciting to see all the opportunities and alternatives around. But again, with timing, that’s still very far off to develop that fully and bring it into play.
Read more: Sasol delivers interim earnings in volatile environment
00:15:56:10 – 00:16:02:00
Alec Hogg:
What is that resource near to where Total has had its big discovery?
00:16:02:02 – 00:16:13:08
Simon Baloyi:
Yes, it’s actually the same area. So all those resources—remember, that is Total that is indeed, as the Mozambican government themselves, is that a Rovuma Basin, which is a massive kind of gas.
00:16:13:10 – 00:16:18:20
Alec Hogg:
And the Orange Basin, are you involved there at all? Coming back to the west coast of South Africa?
00:16:18:20 – 00:16:48:10
Simon Baloyi:
No, the west coast—we are not involved in the Orange Basin. There’s not actually a lot of exploration from our side. That’s because Sasol is exploring on the Namibian side. I mean, by extension, you can assume there’s possibly gas on the east side. However, I still see that as being very far off in terms of resolving the immediate needs of the country’s gas because you need to build a pipeline to bring that gas, or transport it with LNG. However, that still remains an opportunity in the future. I think it will depend on how everything unfolds, whether that will be explored or not.
00:16:57:22 – 00:17:16:16
Alec Hogg:
And then before we move off gas, Kinetico, which is Johnny Roux’s company, is doing very well. It’s in Mpumalanga; it’s a small business. Is there gas feedstock there that could replace or help you to replace what you’re bringing in from Mozambique?
00:17:16:18 – 00:17:40:02
Simon Baloyi:
Yeah, we’ve been in touch with Kinetico Gas. To our teams, the volumes of that gas will not replace the gas from Mozambique. So, the volume that is in Mpumalanga—we do need high volumes, around 160 to 200 tons of gas. The Kinetico Gas find will not be able to fill that gap. So, and then it’s still also drilling and exploration. So, the aggregation of that gas is still a little bit far off. However, the pipeline is there, the network is there. I’m certain that once the gas is ready, they’ll be able to feed that gas into the pipeline.
00:17:57:22 – 00:18:26:19
Alec Hogg:
I’d like to explore the Baloyi era of Sasol and how it’s going to be different from the past. We do know that Sasol produces 40% of South Africa’s fuels, and that’s always been the big driver of revenues and profits for the company. There has been big investment into chemicals to balance that portfolio. Are you going to continue in a more balanced area, or will you be investing more here in South Africa?
00:18:26:21 – 00:18:53:15
Simon Baloyi:
Yeah, for us, the balance is great. It allows you to use almost a natural hedge—when chemicals are down, oil is up, and when oil is down, chemicals are up. So you have the two businesses having the ability to support each other. Remember, we have a fantastic international business. That business, we will have to implement what I call self-help measures to maximize its cash-generating potential. That gives us the ability to generate US dollars and euros. So we’ll continue with making sure we run that business properly.
00:18:53:15 – 00:19:17:10
Simon Baloyi:
At home, however, we have a massive, fantastic asset. It’s an asset that is among the highest taxpayers and employs lots of people. If you look at it indirectly, we’re talking about 500,000 jobs that are linked indirectly to Sasol, more than 5% of the GDP. So it’s a massive cornerstone of the economy. If you look at what we provide to the inland region, up to 30% of it. So, simply, the company is irreplaceable. It has to be part of this landscape for as long as it takes.
00:19:17:10 – 00:19:36:10
Simon Baloyi:
You just spoke about the resources in this country. So, for me, there will definitely be investment as we transition because this company must transition from being predominantly coal-based into a sustainable energy company. Most of that will happen here. So, there will be massive investments at home. But before we get ahead of ourselves, we must first ensure stability.
00:19:36:10 – 00:20:25:04
Simon Baloyi:
As you mentioned, we’ve got a very strong balance sheet. Once we have that, we can explore near-term growth areas, so that there’s stability. Yes, we’ll do that, then we’ll embark on our transformation. Our transformation will look at various areas. We did tell the capital markets that we will be exploring various options and will share them in the market in terms of how we see the company transitioning into a sustainable giant in the country.
00:20:25:06 – 00:20:46:14
Alec Hogg:
It’s very interesting to me to look at your shareholder base. The PIC, obviously, invests long-term, and the IDC are both very big shareholders. But also, there’s Allan Gray, who does seem to look beyond the cycles. If I can understand or paraphrase from what you’ve said, Sasol has got a balance sheet that needs to be fixed.
00:20:46:16 – 00:21:06:21
Alec Hogg:
That’s why you didn’t pay a final dividend this year. And that’s why you’ve now set a $4 billion minimum for your debt. Unless it’s below $4 billion, you’re not going to pay a dividend. From a shareholder’s point of view, there are hundreds of thousands, if not millions, of people who are watching you. When do you expect to reach a point where that threshold will be comfortable enough to resume dividends again, given that at year-end you were sitting at $4.1 billion, so you’re not much above it?
00:21:06:23 – 00:21:20:02
Alec Hogg:
When would you get to a point where that threshold will be comfortable, where you can actually resume dividends again, given that you at year end were sitting at 4.1 billion, so you’re not much above it.
00:21:20:04 – 00:21:53:15
Simon Baloyi:
Yeah, we’re not much above it. We set the $4 billion as our risk appetite. So as we go below that, we will resume paying dividends. If you look at the cash-generating ability of the company, we should be able to do it in FY25. That’s the challenge I’ve given to the team because we are paying as a percentage of free cash flow generated from operations. Notwithstanding a major event or unforeseen risk, we should comfortably stay below $4 billion, and that will continue with our dividend policy. This should help us bring down our net debt to EBITDA. We see it going to a range of 0.5 to one times, which would mean that our debt would be around $2 to $3 billion. If we are right there, then we’ll get comfortable, and we can start stepping up dividends.
00:21:53:17 – 00:22:13:11
Alec Hogg:
And it would also allow you the scope to continue investing, which clearly from the conversation we’ve had is a big story. Just to end off with, your new chief financial officer, Walt Burns—it’s all change at the top. At the moment, are you seeing more energy being unleashed by these changes?
00:22:13:13 – 00:22:33:15
Simon Baloyi:
Yeah, exactly. Precisely. We’ve put together a fantastic team of mainly homegrown talent, with one person from the US. Now and then, you need some external perspective so that you don’t miss blind spots. But I’m so encouraged by the team. We have a fantastic team. Walt brings the latest addition to that. We have Victor Best as well, with massive experience and incredible talent. Additionally, we brought in Dr. Thousand Players, who will guide our future businesses. That excites me. And we have the guys who are already here with deep experience. Let me highlight Chris Steyn, who was also brought in to oversee our chemicals and energy sales.
00:22:33:17 – 00:22:53:19
Alec Hogg:
Simon Baloyi is the Chief Executive of Sasol. I’m Alec Hogg from BizNews.com.
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