It took a juicy financial offer delivering more than R100m in pay over the past two years for Sasol to lure Canadian David Constable to South Africa.  A civil engineer who had spent 29 years at multinational construction group Fluor, Constable’s influence on Sasol’s strategy has been clear. He wasted little time in canning its China strategy and icing Operation Mafutha, writing off tens of millions invested by the corporation developing those long-term plans. Constable switched Sasol’s attention to his own North American base through the decision to build a chemicals cracker in Louisiana, at the time the largest investment into the US by any foreign company. The cracker was only the beginning with a Gas-to-Liquid plant pencilled in to follow (now rubbed out). Switching the group’s attention from rapidly developing China to the well developed USA was a big call. As is today’s decision to cut Sasol’s interim dividend by 12.5%, effectively abandoning its post Global Financial Crisis promise of following a “progressive” dividend policy. Constable joined Sasol four years ago, presumably for his ability to execute on major projects. It’s ironic that in the wake of the oil price crash, he is now having to do the opposite. Whatever his focus, though, Constable remains one of SA’s best paid CEOs having earned R53.6m in the year to June 2013 and R51.9m for the 12 months to end June last year. When you pay someone that much, you tend to listen to his advice, even if it is outside his apparent sweet spot. As Sasol’s board most assuredly is doing right now.  Read the full SENS announcement of Sasol’s interim results by clicking here. – AH   Â
From Sasol:
Sasol’s headline earnings per share increased 6% to R32 in the six months to end December. However, excluding the impact of remeasurement items, net once-off charges, movements in the share-based payment expense and lower unrealised profit in inventory, earnings attributable to shareholders decreased 23%.
Profit from operations of R30 billion increased by 39% due to an overall strong operational performance from Regional Operating Hubs (ROHs) coupled with increased sales volumes and improved margins in Performance Chemicals and Base Chemicals Strategic Business Units.
The group’s profitability was further enhanced by a 9% weaker average rand/US dollar exchange rate (R10,99/US$ for the six months ended 31 December 2014 compared with R10,08/US$ in the prior period). This benefit was partially offset by a 19% decline in average Brent crude oil prices (average dated Brent was US$89,00/barrel for the six months ended 31 December 2014 compared with US$109,83/barrel in the prior period).
The Energy business in Southern Africa increased its liquid fuels sales volumes 3%. Performance Chemicals and Base Chemicals increased by 5% and 1%.
Normalised cash fixed costs increased by 6,1%.
Cash flow generated from operations increased by 21% to R34,0 billion. This includes a decrease in working capital of R1,8 billion in the current period, due to lower commodity prices. The net cash position improved by 29% from R38,0 billion in June 2014 to R48,9 billion as at 31 December 2014. Capital expenditure over the period amounted to R22,1 billion, which is in line with expectations.
The revised dividend policy introduces a dividend cover range based on headline earnings per share. The interim dividend cover was 4,6 times at 31 December 2014 (31 December 2013: 3,8 times). Taking into account the current volatile macro-economic environment, capital investment plans and the cash conservation initiative the Sasol Limited board of directors has declared an interim dividend of R7 per share (12,5% lower compared to the prior period).
CEO David Constable says  “With oil prices moving dramatically lower over the last six months, the management team has formulated a comprehensive Response Plan to conserve cash and further refine our organisational structures and near-term strategies.”
As at 31 December 2014, nearly 1 500 voluntary separations and early retirements were approved by the company. This will aid cost savings now estimated at R4.3bn by financial year 2016 off a 2013 cost base. Cost trends are still forecast to track SA PPI from financial year 2017. Sasol plans to deliver further cash cost sustainable savings of R1 billion annually through initiatives like a 30-month freezing of between 500 and 1 000 vacancies.
In response to a lower-for-longer oil price environment a 30-month cash conservation target range of between R30 billion to R50 billion has been set, using 31 December 2014 as the baseline via:
- capital portfolio phasing and reductions – target of R13 billion to R22 billion;
- capital structuring – target of R8 billion to R12 billion;
- further cash cost reductions – target of R4 billion to R7 billion;
- working capital and margin improvements – target of R5 billion to R9 billion.
Decisive measures have already been agreed to and key decisions have been taken to conserve cash, including the delay of our gas-to-liquids (GTL) plant in the US, the change to our dividend policy as well as the further optimisation of our organisational structures.
