*This content is brought to you by SasolÂ
Sasol delivered a strong set of results for the year ended 30 June 2021. Our earnings before interest and tax (EBIT) of R16.6bn increased by more than 100% compared to the prior year. This performance was underpinned by a strong cost, working capital and capital expenditure performance, despite the continued impact of the COVID-19 pandemic and adverse weather events.
A notable gross margin recovery was recorded in the second half of the financial year, supported by the combined impact of higher Brent crude oil and chemicals prices, offset by a stronger rand/US dollar exchange rate.
- Our earnings were mainly impacted by non-cash adjustments the net of which amounted to R15.4bn such as:
- Net impairments of R28.7bn mainly due to adjustments to our long-term exchange rate outlook and higher cost to procure gas over the longer term;
- Net profit on disposal of businesses of R2.2bn, including the Air Separation Units;
- R3.4bn gain on the realisation of the foreign currency translation reserve (FCTR), mainly on the divestment of a 50% interest in the LCCP Base Chemicals business;
- Gains of R5.5bn on the translation of monetary assets and liabilities due to a 18% strengthening of the closing rand/US dollar exchange rate compared to June 2020; and
- Gains of R2.3bn on the valuation of financial instruments and derivative contracts.
Balance sheet management
Cash generated by operating activities increased by 6% to R45.1bn compared to the prior year. This, together with the asset divestment programme, enabled the repayment of approximately R81bn of debt, including the settlement of our rand denominated banking facilities of approximately R4bn.
Actual capital expenditure amounted to R16.4bn compared to R35.2bn during 2020. The reduction in capital expenditure was carefully executed as a result of our optimised risk management focus whilst ensuring asset integrity and safety were not compromised.
Our net debt to EBITDA ratio at 30 June 2021, based on the revolving credit facility (RCF) and US dollar term loan covenant definition, was 1.5 times, significantly below the agreed threshold level. Although this ratio meets our targeted net debt to EBITDA level, we will continue with our efforts to reduce leverage and absolute debt levels further. This will create valuable financial flexibility as we execute our Future Sasol strategy in the midst of an uncertain macroeconomic environment. Our objective remains to steer the balance sheet metrics toward restoration of our investment grade levels.
During the year bonds of $1.5bn (R21.4bn) were issued and listed on the New York Stock Exchange. At 30 June 2021, our total debt was R102.9bn down from R189.7bn as at 30 June 2020. During the year, we utilised proceeds from our asset divestments to repay the US dollar syndicated loan, a portion of our RCF and term loans, reducing our US dollar denominated debt by almost R76bn ($5bn).
As at 30 June 2021, our liquidity headroom was R84bn ($5.9bn), well above our outlook to maintain liquidity in excess of $1bn, with available rand and US dollar-based funds improving as we advance our focused management actions.
In line with our financial risk management framework, we continue to make good progress with hedging our foreign currency, crude oil and ethane exposure. We have been successful in hedging our total oil exposure for 2022 which increases the certainty of future cash flows to reduce debt levels and enable us to execute on our Future Sasol strategy.
