Sasol FY profit down sharply, expects $250-300m earnings from US Gulf project in 2019

Source: ICIS News


LONDON (ICIS)--Sasol’s net profit for its 2018 fiscal year slumped on currency headwinds and production interruptions despite the firmer oil price, but the firm's flagship US Gulf Coast complex is drawing closer to completion, the South African chemical major said on Monday.

South African rand (R) 2018 2017 Change (%)
Net profit 8.7bn 20.4bn -57.4
Sales 181bn 172bn 5.2
Operating profit 17.7bn 31.7bn -44.2
Earnings per share (EPS) 36.03 38.47 -6.34
($1 = R14.55)

Full-year net profit plunged to South African rand (R) 8.7bn ($598m) on the back of a stronger average rand to US dollar exchange rate and production interruptions due to Hurricane Harvey in the US and supply issues from South African utility Eskom.

The impact of the strengthening rand was mostly strongly felt for the company’s South African chlorvinyls supply chain, where shrinking margins as a result of currency tailwinds led Sasol to record a R5.2bn pre-tax impairment on the unit.

The hit for chlor vinyls operations, along with work on the Lake Charles, Louisiana, complex and the ending of a power purchase agreement with Eskom, slashed earnings before interest and taxes (EBIT) for Sasol’s Base Chemicals division to R588m from R6.86bn for the 2017 fiscal year.

Full-year EBIT for the company’s Performance Chemicals division fell slightly year on year to R8.82bn compared to R8.76bn during the previous year, as stronger sales volumes and firm demand were offset by the stronger rand.

The company also booked a R2.8bn impairment on its Canadian shale gas assets, R4.8bn in mark-to-market hedging losses, R1.1bn from the scrapping of a US gas to liquid project, and R2.9bn from the implementation of its new Khanyisa black South African ownership share scheme.

“Overall, our operational performance was satisfactory, however unplanned Eskom electricity supply interruptions and two internal outages at Secunda Synfuels Operations, negatively impacted volumes,” said Sasol co-CEO Bongani Nqwababa.

The company’s Lake Charles complex is 88% complete, Sasol said, with the cracker, first polymer unit and ethylene oxide/ethylene glycol facility on track to start up in the fourth quarter of the 2018 calendar year.

The company is projecting an earnings before interest, taxes, depreciation and amortisation (EBITDA) contribution of $250m-300m in 2019, ticking up to $1.3bn by 2022.

Sasol had raised the cost estimate for the project from $8.9bn to around $11bn in 2016 on the back of labour costs and weather disruptions, but the budget has remained steady since then aside from an additional $130m to the price tag following Hurricane Harvey.

So far $9.8bn of the of the $11.13bn project cost has been invested, Sasol said.

“2019 will be a defining year for Sasol with the start-up of [Lake Charles], a catalyst for transforming our earnings profile,” added fellow co-CEO Stephen Cornell.

However, the company has moved away from megaprojects such as Lake Charles and in favour of smaller capital projects, it said.

Pictured: Lake Charles project, during construction phase
Source: Sasol

($1 = R14.55)

Clarification: Re-casts paragraph 3