Sasol delivers mixed half-year performance, investment case intact
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Sasol yesterday delivered its interim financial results for the six months to December 2021. Though mixed, the results confirmed that the company's investment case is still intact.
Earnings before interest and tax (EBIT) was R24,3 billion, up 12% compared to the previous corresponding period. This performance was underpinned by a strong macroeconomic environment with higher crude oil prices, refining margins and chemicals prices coupled with increased demand, negated by lower production volumes due to operational challenges at our Secunda Operations (SO).
Balance sheet management
Cash generated by operating activities increased by 73% to R20,3 billion while actual capital expenditure amounted to R10,4 billion compared to R7,5 billion during the prior period. The higher capital expenditure was due largely to the absence of a phased shutdown at SO in the prior period and increased sustenance capital expenditure in the current period.
Sasol's net debt to EBITDA ratio at 31 December 2021, based on the revolving credit facility (RCF) and US dollar term loan covenant definition was 1,3 times, significantly below the threshold level of 3 times.
Sasol's commitment to reducing its leverage and absolute debt levels continues.
At 31 December 2021, the company's total debt was R109,2 billion compared to R102,9 billion at 30 June 2021. During this reporting period, Sasol repaid a portion of the RCF. However, the weakened closing Rand/US Dollar exchange rate had a translation effect of R11,7 billion on its debt.
Gearing was at 59,1% at 31 December 2021 from 61,5% mainly due to stronger cash earnings generation, offset by the weaker closing exchange rate.
At 31 December 2021, Sasol's liquidity headroom was R91 billion (US$5,7 billion), well above its outlook to maintain liquidity in excess of US$1 billion. The company will repay the outstanding debt on the Commercial Paper (R2,2 billion) and a US$1 billion bond (R16 billion) in August 2022 and November 2022 respectively.
Future Sasol
At its September 2021 Capital Markets Day, Sasol announced its plans to deliver on Future Sasol. The company has since made the following progress:
- Large scale renewables: Sasol and Air Liquide are jointly executing 600MW renewables, for SO and have completed the request for proposal (RFP) process. Negotiations on the power purchase agreements are underway and should be finalised this calendar year. Sasol is also making good progress on the smaller scale 10MW renewables plants in Sasolburg and Secunda and is evaluating the potential to add approximately 60MW additional renewable capacity in Sasolburg in support of its shorter-term plan to produce green hydrogen. In Brunsbüttel, Germany, Sasol Chemicals has been obtaining 100% of its external electricity supply from renewable resources since 1 January 2022.
- Gas Transition: Sasol recently approved development funds for the first tranche of the additional gas reforming capacity in Secunda to achieve its 2030 GHG reduction target. Furthermore, the company's Production Sharing Agreement project in Mozambique is performing to plan with the gas off-taker, Central Termica de Temane, achieving financial close in December 2021. A significant lever for decarbonisation is the switchover to more natural gas feedstock towards 2030, and to reduce our dependency on coal. To this end, Sasol is making good progress in the purchasing of approximately 40 to 60 petajoules of LNG and expect financial close by 30 June 2022.
- Green hydrogen: Sasol plans to produce the first commercial scale green hydrogen in Sasolburg in 2023, using electrolysers which have been repurposed. Sasol is also leading the pre-feasibility study for the Boegoebaai green hydrogen development project, which is a strategic project initiated by the South African government in support of the country's transition towards a lower carbon future.
- FT sustainable solutions: Sasol ecoFT business has made good progress in exploring sustainable aviation fuel (SAF) and Power-to-X opportunities. Over 10 new opportunities for SAF production are being evaluated and two projects have advanced with partnership frameworks established.
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