Sasol expects earnings to collapse 69%

Oil price, softer global margins and Lake Charles project weighs on first-half earnings

Integrated energy and chemical company Sasol has again warned to expect lower margins and operating profit in its interim earnings, impacted by a weak macroeconomic environment.

In a trading statement published on Friday, for the half year (H1) ended December 31, 2019, it revealed that earnings per share (EPS) could be between R5.37 and R7.76 per share – down 68% to 78% from H1 2019’s R23.92.

Highlights:

• Headline earnings per share are expected at R4.79 to R7.11 per share – down 69% to 79% (2019: R23.25)
• No significant impairments for the period
• Core HEPS expected at R7.90 to R10.04 per share – down 53% to 63% (2019: R21.45).
• Adjusted earnings before interest, tax, depreciation and amortisation (adjusted EBITDA) seen declining 22% to 32% (2019: R26.8 billion).
• Net debt to EBITDA is expected to remain below 3 times and gearing to remain within previous market guidance of 55% to 65%.

The adjusted EBITDA was due to a 9% decrease in the rand per barrel price of Brent crude oil, softer global chemical and refining margins and a negative EBITDA contribution from the Lake Charles Chemicals Project (LCCP) in the US, according to Sasol.

“Earnings are further impacted by approximately R1,7 billion in additional depreciation charges and approximately R2 billion in finance charges for financial half year 2020 as the LCCP units reach beneficial operation,” the group stated.

Sasol’s share price fell over 7% to R236.80 by 10:05 on Friday. Shares are down -15.58% year to date.

Sasol share price over a year

Sasol warned shareholders in November to expect a knock in earnings.

Read: Sasol warns of earnings decline

The LCCP is expected to produce the building blocks of products including packaging, bottles, and footwear, plus solvents, explosives and fertilizers. It’ll boost the portion of chemicals in Sasol’s sales mix to 70%.

However, the project has been beset by cost overruns amounting to billions of dollars, which led to the eventual resignation of co-CEOs Bongani Nqwababa and Stephen Cornell in October. On January 14 the chemicals group confirmed that there had been an explosion at the low-density polyethylene unit that led to a fire at the LCCP.

Sasol said that mainly as a result of the incident, it revised its guidance on the EBITDA contribution from the LCCP for the financial year 2020 to between US$50 million and US$100 million.

Sasol’s results are due on February 24.