“The past 12 to 18 months were dire. It was hard. It was blood, sweat and tears,” Victor says. He gave a wide-ranging interview to The Africa Report following this week’s announcement of Sasol’s results for the year ended 30 June 2021.
…there’s some concern about what that means around their views in terms of future viability…
Paul Victor, who has been Sasol Limited’s CFO since 2016, is ‘reluctantly’ leaving the company at the end of June 2022 after having served for 22 years at Sasol. Hanre Rossouw is the CFO-designate and a handover is scheduled for April 2022.
Two analysts, who spoke to us but asked not to be named to observe their companies’ policies, both agreed that Sasol has registered a good performance for 2021. However, the duo differed in their assessments of Victor as Sasol CFO.
In the year under review, the company’s financials show that:
- Sasol repaid an estimated R81bn (€4.5bn) in debt. That includes about R4bn of its rand-denominated banking facilities.
- It stabilised its net debt to earnings before interest, tax, depreciation and amortisation (EBIDTA) ratio to 1.5 times, which is below the covenant level of 3.0 times.
- Balance sheet gearing is down from 117% to 61.5%.
- Headline earnings per share have improved 100% to R39,53.
From a backward-looking standpoint, “they put out a very strong set of numbers,” said the first analyst, adding that “the results were boosted by a much higher rand and oil price, as well as strength in global chemical prices.”
“That helped the balance sheet in terms of the company paying down debt. We’ve started to see that debt come down,” said the first analyst. The second analyst said: “The results were alright.”
In addition to Africa, Sasol has a footprint in Eurasia and North America. Its energy segment comprises mining, gas and fuels while its chemical product lines include base and performance chemicals solutions. Its energy product lines encompass coal, liquid fuels and crude oil, as well as methane-rich and natural gas, and gas condensate.
Self-help de-risks balance sheet
In 2020, the listed integrated petrochemicals and energy company ran into significant headwinds prompted by a balance sheet that was overburdened by cost overruns at its Lake Charles Chemicals Project (LCCP) in Louisiana, US.
The Covid-19 pandemic added to the company’s woes with exchange rate volatility and a plunge in the price per barrel of Brent crude oil. This prompted an announcement in March 2020 of self-help measures underpinned by balance sheet de-risking and deleveraging.
A key component of the measures was an accelerated asset divestment programme. So far, Sasol has realised more than $3.8bn from the divestment process, which “will soon be drawing to a close, with a few smaller divestments to be concluded during calendar year 2021,” according to Fleetwood Grobler, Sasol Group’s CEO and president.
Total debt is down to R102.9bn in the year under review from R187.7bn as at 30 June 2020. Victor deems the debt repayment as significant because “it de-risks our balance sheet almost entirely. That was the biggest thing.” Equally important, adds Victor, is that this was not done “at the expense of sacrificing the company.”
“We still have competitive global assets that can make money. You can see that in our EBITDAs. The current assets delivered those results. We left ourselves with a business that is cost-competitive globally; that has assets which are cash lucrative; and a balance sheet that has, effectively, delivered,” said the Sasol CFO. “We still want to get the balance sheet debt a bit lower, but [considering] where the run rates currently are, we do believe it will not take us too long to get there.”
Their high carbon emissions are the elephant in the room…
Focus will shift to reintroducing the dividend, “which we believe is not too far in the future,” said Victor. “Then, Sasol will be back to its old self in terms of being a globally recognised [and] competitive company,” he tells The Africa Report.
This has all happened over the course of the past 12-15 months. Victor says the group is comfortable that it has done a lot to steer through volatility and away from crisis mode to its current position. Admittedly, though, “[…] the markets have helped. […] the macros have helped us as well. Today, we are in a very strong position”, Victor says.
Restoring Sasol’s credit ratings will ensure that the company attracts the calibre of investors who will help propel its future strategy. “That’s why you want to be blue-chip. We believe regaining that status – blue-chip and investment grade – will help us regain that kind of investor which we had probably lost,” Victor told The Africa Report.
“It also means that future debt will come at [a] lower cost of capital. Who doesn’t want that? We also want to get the best capital structure for the business. We want to invest in future projects, and that [cost of capital] impacts your efficiency if your rates are high. You do this for the longer term,” Victor said.
Victor(y) lap
Reflecting back on his tenure as CFO, Victor says: “The lowest moments were the capital overruns on Lake Charles. Nothing for me, personally, will take that pain and agony away in my career. It was probably the biggest disappointment ever.”
However, that pain and agony was followed by “personal growth and [the] investment that Sasol put in me to become a CFO who can guide a large multinational company through a crisis like this, which has been fulfilling. Being part of this journey is probably the biggest success, personally, and also as part of the company success,” he said.
“Reluctantly, I have to leave. But what an amazing company,” Victor said. His work, however, is not done yet. Sasol has scheduled a Capital Markets Day in September, where the company will reveal its greenhouse gas emissions reduction strategy for 2050 and provide a review of its 2030 targets.
“Personally, I am a strong supporter of a green future. We all want that for our children. No company is above that,” Victor told The Africa Report. “In terms of targets for 2030 and absolute CO2 reduction, we are seeing there are many different levers we can pull to increase that target much more than what we announced previously. The details will be announced during our Capital Markets Day.”
“We believe that, with a modest investment – and not at the expense of current rates of returns – we will be able to go greener and do it at value. The second phase is the longer term and that will be to phase coal out and introduce green hydrogen, which will produce green petrol and green chemicals,” he said.
All will be revealed in September, including pathways to carbon neutrality and future investments that will help Sasol accomplish that goal. “Those details will be shared with investors not too long from now,” Victor told The Africa Report.
Outlook worries
Although the first analyst complemented Sasol’s results for 2021, he noted some concerns. “On a forward-looking basis, they have guided production slightly lower for the next year. The gas they get from Mozambique, which is a key input feedstock for Sasol, is lower.”
“They are blaming Covid-19. They haven’t been able to do as much drilling. They’re [also] struggling with some issues on their coal mines – coal quality. That’s hit a bit of their production this year,” said the first analyst.
Also worrisome is the fact that Sasol has written down a large portion of its South African assets. Although this is a basic accounting entry, “there’s some concern about what that means around their views in terms of the future viability and profitability of those assets,” the first analyst said. “We don’t know why. They have set up a Capital Markets Day for September. We will see when they come out in September with that.”
The second analyst also highlighted some “issues with the outlook”, concerns over the gas supply from Mozambique and the coal quality in South Africa. “Their high carbon emissions, which they need to do something about, are the elephant in the room… We are waiting for the Capital Markets Day in September,” the second analyst said.
Grading the CFO
However, the analysts differed on their assessment of Victor’s term as Sasol CFO. “It was on his watch when the cost overruns occurred. Ultimately, if people are asking for more money than they should, you should be on top of that,” said the second analyst, who added that “it was [also] obvious that they should have hedged oil last year. They’ve had to sell off a big chunk of the LCCP at a rock bottom price.”
The first analyst was more circumspect and sympathetic. “Overall, I think he’ll [Victor] look back at having guided the business through a difficult period: both the Lake Charles overruns and also through the whole balance sheet stresses last year. As we sit today, he’s done quite a good job, I think, as part of the new management team,” the first analyst noted.
“Historically, there were one or two missteps which he was, partly, responsible for. I know his replacement fairly well. He [Rossouw] is more than up to the job,” concluded the first analyst.
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