Chemicals and energy group Sasol’s share price on the JSE fell almost 9% on February 7 after it said it was likely to report a mixed set of results for the six months to December 31. 2022.
Over the interim period, Sasol benefited from a stronger oil price, better refining margins and a weaker rand:dollar exchange rate, but this was offset by the impacts of weaker global economic growth, depressed prices of chemicals and the higher costs of raw materials and energy.
Sasol noted that its South African operations also experienced several operational challenges, particularly in the mining sector, where coal productivity and quality were lower. This was compounded by supply chain constraints related to poor rail performance, unavailability of port infrastructure affecting sales volumes and power outages affecting Sasol’s suppliers and customers.
Overall, the group’s adjusted earnings before interest, tax, depreciation and amortization (Ebitda) for the period under review is expected to be in line with the reported Ebitda of Rs 31.8 billion for the six months ended 31 of December 2021.
Sasol pointed to several non-cash adjustments for the period, the first of which is R7 billion in unrealized gains on the translation of monetary assets and liabilities, as well as the valuation of financial instruments and derivative contracts.
In addition, the remeasurement of items resulted in a net loss of R6.4 billion.
This was partly due to the R8.1 billion impairment of the cash generating unit (CGU) at the Secunda liquid fuels refinery. This deterioration was due to an update to macroeconomic pricing assumptions, including forecasts of higher electricity prices and lower gas sales prices, as well as an update to the near-term volume forecast to reflect short-term operational challenges.
In addition, the South African wax CGU impairment of R900 million was also driven by a higher cost to acquire long-term gas and lower sales volumes and prices due to market conditions each increasingly competitive.
The additional R900m impairment of the Essential Care Chemicals CGU at Sasol China resulted from a combination of lower margins and higher costs, which was mainly attributed to the impact of prolonged restrictions associated with China’s zero Covid-19 policy, despite the fact that these restrictions were recently lifted.
Sasol has also referred to the reversal of an impairment processed in 2019 at the Lake Charles tetramerization CGU in the United States of R3.6 billion due to sustained improvement in plant reliability, which has increased the volumes of comonomers available for sale. .
In addition, long-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, down 0% to 10% from the R23.98 EPS reported by to the previous comparable period.
Earnings per share (HEPS) are expected to improve by more than 95% to between R29.84 and R31.36, compared to the HEPS of R15.21 reported for the previous comparable period.
Meanwhile, core HEPS is expected to increase between 2% and 12% to between R22.97 and R25.23, compared to core HEPS of R22.52 reported for the previous 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 the early hours of February 7 but was trading at R285.36 at 10.45am, down 6.46% from the close on 6 February of R305.07.
