Sasol, the fuel and chemicals-from-coal group has warned of sharp losses in its year to end June due in no small measure to a R45.5 billion impairment at its Chemicals America business.
Sasol said in a trading statement yesterday that headline earnings per share were expected to be between 59% and 77% lower at between R12.28 and R21.95 per share due to challenging market conditions, notably pressure from low chemicals prices and tight margins.
The grim outlook sent the share price falling by 2.10% to R127.50 per share on the JSE, a price that is already half the price of a year ago.
Abax Investments portfolio manager Mish-al Emeran said the material impairments at Sasol’s Chemicals America business includes all Sasol’s chemicals operations in the US, not only the cracker at Lake Charles.
“The outlook for the US Chemicals business is very uncertain, more so now after the impairment as it brings into question the longer-term profitability potential of the business. The global chemicals value chain has been under significant pressure with demand concerns stemming from global economic challenges and overcapacity driven by supply growth in China,” the analyst said.
“A key concern post Sasol’s impairment at Chemicals America and the derecognition of the deferred tax asset is that it now likely implies significantly lower longer-term prices and/or margins than prior management assumptions,” said Emeran.
Sasol said its earnings were expected plunge to a basic loss per share of between R68.82 and R71.48, compared with the earnings of R14 a share in the prior year, this after it said it would report R55.8bn in write-downs of which the Chemical American impairment was the biggest.
The group also wrote off R3.9bn on its Chemicals Africa business’s polyethylene, chlor-alkali and polyvinyl chloride and wax value chain, driven by external conditions including the prolonged softer market pricing and the outlook. The group’s annual results are expected to be released on August 20, 2024.
More positive drivers of the annual performance included that it benefited from a stronger rand oil price, improved refining margins, and higher sales volumes, while there had also been a stronger operational performance in the fourth quarter. But these were not enough to offset the impact on the results of the write-downs.
Sasol’s adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) were expected to fall by between 2% and 17% to between R54.7bn and R64.7bn from R66.3bn in the prior year.
Earnings decreased by more than 100%, and were also impacted by a R5.7bn write-down at Secunda liquid fuels refinery and derecognition of a deferred tax asset of R15.3bn, mainly relating to assessed loss carries forward on the Chemicals America operations that were not anticipated to be utilised.
There was a R4.7bn unrealised gain on the translation of monetary assets and liabilities, and valuation of financial instruments and derivative contracts.
The group said in a production report last month that its mining, and fuel and chemicals production were within guidance through the year, while gas production in Mozambique was higher than expected.
Total mining productivity for the 2024 financial year was 3% higher than the previous year and within their market guidance of 975 to 1 100 t/cm/s (tons per continuous miner shift).
In Mozambique, gas production was 6% higher than in 2023 and exceeded market guidance of 113 to 119 bscf (billion standard cubic feet).
Secunda Operations fuel production volumes were 7mt (million tons), within a market guidance of 6.9 to 7.1mt, and 1% higher than the year before. This was mainly due to a phased shutdown in 2024 relative to a total shutdown in the 2023 financial year.
BUSINESS REPORT