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Sasol resilient amid power outages

INCE / 23 JULY 2018 - 04.31 /STEPHEN GUNNION

The oil and chemicals group says its 2018 results were underpinned by higher volumes and a rising oil price, but it has been hit with impairment charges

Sasol expects to deliver what it calls a "resilient" set of results for the year to end-June, underpinned by higher sales and production volumes and a much higher oil price and product margins. However, the oil and chemicals group says its results have been negatively impacted by several unplanned interruptions to Eskom's electricity supply and two internal outages at its Secunda Synfuels Operations. These resulted in lower production volumes. It has also racked up a number of impairments that will result in a sharp drop in earnings per share.

The write-downs include the R3.7 billion partial impairment of its SA Chlor Vinyls cash-generating unit due to the impact of the strengthening exchange rate on margins at its Base Chemicals business and a partial impairment of R1.2 billion in Mozambique.

That's because of lower than expected oil volumes from its production sharing agreement in that country and weaker long-term macroeconomic assumption. In the first half of the year, it impaired its Canadian shale gas assets by R2.8 billion due to a further decline in gas prices and scrapped its US gas-to-liquids project amounting to R1.1 billion. It said the implementation of BEE scheme Sasol Khanyisa also resulted in the recognition of a share-based payment expense of R3 billion.

Sasol said planned and unplanned production interruptions and a safety-related stoppage at its mining division in the first half of the year affected it operational and cost performance for the year.

Despite two additional safety-related stoppages at Mining and unplanned electricity outages at Secunda, it managed to claw back and deliver a stronger operational performance in the second half of the year.

Sales volumes at its Performance Chemical business increased by 1% due to strong market demand despite interruptions to its electricity supply. Base Chemicals reported a 1% decrease in sales volumes due to production interruptions and an initial stock build for its high-density polyethylene joint venture in the US. Excluding the impact of the Eskom interruptions, it said sales volumes increased by 1%. Liquid fuels sales were down 2% due to lower volumes from its Secunda Synfuels Operations and Nattered and a challenging retail liquid fuels market in SA.

In the last quarter, we have seen considerably higher yields and production volumes across the value chain which are more closely aligned to our internal targets," the company said in a statement."We are well positioned to continue with this improved operational performance into the 2019 financial year."

Earnings before interest, tax, depreciation and amortisation (EBITDA) for the year are expected to rise by between 6% and 16%. Core headline earnings per share (HEPS) are likely to fall by 1% to 11% due to a depreciation of about R16 billion and employee share-based payment expenses of R1.5 billion due to the big improvement in the Sasol share price at the end of the financial year. It said the R3 billion share-based payment for Khanisya was considered to be a once-off and non-cash item.

HEPS for the year will be 16% to 26% lower and EPS are expected to decrease by between 52% and 62%.

Its shares ended 0.8% higher at R502.84 on Friday.



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