Chemicals and energy group Sasol’s share price on the JSE fell by nearly 9% on February 7 after it said it was likely to report a mixed set of results for the six months ended December 31, 2022.
During the interim period, Sasol benefitted from a stronger oil price, better refining margins and a weaker rand:dollar exchange rate, but that was offset by the impacts of weaker global economic growth, depressed chemicals prices and higher feedstock and energy costs.
Sasol pointed out that its South African operations also experienced several operational challenges, most notably in the mining sector, where coal productivity and quality were subpar. This was exacerbated by supply chain constraints related to poor rail performance, unavailability of port infrastructure impacting on sales volumes and power outages impacting on Sasol’s suppliers and customers.
Overall, the group’s adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) for the period under review are expected to be in line with the R31.8-billion Ebitda reported for the six months ended December 31, 2021.
Sasol noted several non-cash adjustments for the period, the first of which is R7-billion in unrealised gains on the translation of monetary assets and liabilities, as well as the valuation of financial instruments and derivative contracts.
Additionally, the remeasurement of items amounted to a net loss of R6.4-billion.
This was partly because of the R8.1-billion impairment of the Secunda liquid fuels refinery cash generating unit (CGU). This impairment was owing to an update in macroeconomic price assumptions, including higher electricity price forecasts and lower gas selling prices, as well as an update to the short-term volume forecast to reflect near-term operational challenges.
Further, the impairment of the South African wax CGU of R900-million was also driven by higher cost to procure gas in the longer term, and lower sales volumes and prices because of increasingly competitive market conditions.
The additional impairment of R900-million of the essential care chemicals CGU in Sasol China resulted from a combination of lower margins and higher costs, which was attributed primarily to the impact of prolonged restrictions associated with China’s zero Covid-19 policy – despite these restrictions being recently lifted.
Sasol also referred to the reversal of an impairment processed in 2019 on the tetramerisation CGU at Lake Charles, in the US, of R3.6-billion, owing to a sustained improvement in plant reliability, which has increased co-monomer volumes available for sale.
Moreover, longer-term contracts have been signed with several customers to improve the overall profitability of the business.
Sasol expects to report earnings per share (EPS) of between R21.55 and R23.98 for the six months under review – a decrease of 0% to 10% on the EPS of R23.98 reported for the prior comparable period.
Headline earnings per share (HEPS) are expected to improve by more than 95% to between R29.84 and R31.36, compared with the HEPS of R15.21 reported for the prior comparable period.
Core HEPS, meanwhile, are expected to increase by 2% to 12% to between R22.97 and R25.23, compared with core HEPS of R22.52 reported for the prior comparable period.
Sasol will release its interim financial results on February 21.
The group’s share price on the JSE fell to R278.01 in early morning trade on February 7, but was trading at R285.36 at 10:45 – a 6.46% decrease on the February 6 close of R305.07.