Sasol’s sorry saga continues
Sasol, the listed integrated international chemicals and energy company, has warned the market it had a bumpy six months.
Sasol informed shareholders to prepare for declines in earnings per share and headline earnings per share. The true extent will be revealed on Monday, 24 February, when the group is scheduled to present its half-year results for the six months ended 31 December 2019.
Sasol is a homegrown chemicals and energy company whose footprint spans the length and breadth of South Africa.
- In addition, its Africa portfolio includes Mozambique and Gabon, where it has interests in gas and oil respectively.
- Beyond the continent’s borders, Sasol has operations in international markets including North America, Germany, and China.
The company is one of the biggest stocks on the Johannesburg Stock Exchange (JSE) and has an estimated market capitalisation of R140bn ($9.27bn). In its 2019 annual report, Sasol said it generated R204bn ($13.5bn) in revenue from its operations.
The Africa portfolio has been a source of good fortunes. But North America has been beset by challenges.
Sasol has a presence in Canada and the US. In the latter market, its Lake Charles Chemical Project in Louisiana has incurred massive cost overruns and a troublesome internal company culture. The project’s costs have ballooned to $12.9bn (R196bn).
Rough ride in Louisiana
As a result, Sasol expects:
- earnings per share to drop as much as 68% to 78%, to between R5.37 and R7.76. In the previous comparable period, earnings per share were R23.92;
- headline earnings per share in the region of R4.79 and R7.11. This represents a decrease of 69% and 79%. In the prior period, the company reported headline earnings per share of R23.25.
Root of the rot
In 2019, the Sasol board commissioned a sweeping review into the Lake Charles Chemicals Project, the results of which were published in October of the same year. In addition to the cost overruns, the project ran behind schedule.
Bad weather also contributed to the project delays. In 2017, the Lake Charles Chemical Project was caught in the crosshairs of Hurricane Harvey.
Some of the review findings include:
- “The primary responsibility for shortcomings in relation to [Lake Charles] lies with the former leadership, which engaged in conduct that was inappropriate, demonstrated a lack of competence and was not transparent.” But “there is not sufficient evidence to conclude these individuals acted with an intent to defraud”.
- “The causal factors include: competence – insufficient experience within the [Lake Charles] leadership team in executing mega projects.”
Joint CEOs Bongani Nqwababa and Stephen Cornell were among the high-profile casualties of the board review. Sasol parted ways with Nqwababa and Cornell at the end of October.
“It is the judgment of the board that, for trust to be restored in the company, a leadership reset is required,” the company said at the time.
Sasol veteran Fleetwood Grobler was appointed president and CEO on 1 November 2019.
Board chairperson Mandla Gantsho said, “Sasol is now focused on restoring trust.”
Sasol is structured along three main pillars: its operating business units, its regional operating hubs, and its strategic business units.
The international operating challenges it faces include:
- oil price volatility, which poses a threat to profitability;
- fluctuations in the price of US purity ethane, a major feedstock for the Lake Charles Chemical Project; and
- the chemical industry entering a downward cycle because of earlier-than-expected new capacity from China and the US-China trade dispute.
Africa to the rescue
The company has had better luck in its Africa operations and remains upbeat about prospects on the continent.
In Mozambique, where it runs a natural gas project, Sasol has won exploration and concession contracts on two blocks. One block is adjacent to its existing producing licence. The second block is offshore.
- “I have no doubt Sasol will continue to evolve as it leverages its competitive strengths to grow in specialty chemicals, Africa-focused upstream exploration and production, and liquid fuels retailing in South Africa,” said Gantsho in the 2019 annual report.
He stepped down as Sasol chairperson at the company’s AGM in November 2019.