Sasol stands by determination to not pursue rights challenge

NOMPU SIZIBA: JSE-listed power and chemical compounds firm Sasol launched half-year outcomes at present, February 22, 2021. For the six months ended December 2020, the corporate reported sturdy outcomes. Adjusted earnings earlier than curiosity, tax, depreciation and amortisation – often known as ebitda – declined by 6% to R18.6 billion, whereas headline earnings shot as much as R11.Eight billion, in contrast with R3.7 billion in the identical interval in 2019. A key improvement within the Sasol story is that it now has confirmed that it received’t be seeking to pursue a rights challenge from shareholders following its having paid off a 3rd of its bulging debt, whittling that debt down by R63.Four billion within the interval.

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Properly, to debate these outcomes additional, I’m joined on the road by Fleetwood Grobler, the president and CEO at Sasol. Thanks very a lot for becoming a member of us, Mr Grobler. Now the metrics are pointing in the proper course, what are the main elements to which you’d attribute this?

FLEETWOOD GROBLER: Properly, I feel it’s the supply of what we indicated to the market in March final 12 months, to say that is the plan that we have to flip the ship round. We delivered on all of that. So let me simply to refresh our recollections; what we stated we’d ship was to do some money conservation or financial savings to the quantity of US$1 billion. We stated must do asset-divestments of at the least US$2 billion.

After which we moved to the rights challenge. Now, if we glance again and say, okay, what has actually transpired is that we’ve got delivered US$three.three billion of asset divestments to this point, and we want to improve that to $three.Eight billion by the top of this calendar 12 months. We now have additionally delivered on all of the disaster response plan cost-conservation measures, so we’re monitoring effectively to ship greater than the $1 billion.

After which we additionally talked about that we have to get our non-sustainable financial savings right into a sustainable matter, and that has been handled via our transformation programme of Sasol That has now been applied. We gave the market an replace in December final 12 months of what our targets are and the way we’re going to obtain them.

I feel all this stuff actually delivered ultimately, [so] that we may cut back debt from $190 billion to the $126 billion presently, and that we’re on a trajectory to cut back that additional via the following months. And so I feel that’s actually underpinning the massive supply that we promised and which we’ve now delivered.

NOMPU SIZIBA: So at an operations degree, how have your varied divisions carried out, and has the chemical aspect of the enterprise shocked you – provided that it’s not that way back that you just have been predicting a few years of gloom within the sector?

FLEETWOOD GROBLER: We all know that the commodity markets are very cyclical, and so you possibly can argue that we’ve got seen the underside of the chemical cycle, particularly the polyethylenes and the polypropylenes, and that from [this] 12 months on there’s going to be a restoration cycle.

So sure, on our basis enterprise within the chemical compounds that we’ve got from South Africa particularly now, excluding the US polymers enterprise, we’ve seen a resilient restoration. And a few of our merchandise that go into and hand sanitisers and functions like that, into development and packaging – they’ve actually carried out very resiliently and elevated fairly a bit in margin, and demand is trying up. That’s the case.

I feel if I take a look at a few of the different enterprise items, we all know that our power enterprise was underneath fairly some duress with all costs falling with demand falling away. However however that, we posted fairly a good-looking ebitda. Keep in mind, our power enterprise additionally includes our gasoline enterprise, which was exceptionally sturdy via the interval. And we’ve now seen that merchandise by way of diesel and petrol have virtually recovered absolutely to pre-Covid ranges. The one remaining bit that we consider will take a while is aviation jet gas, which can solely get well as soon as we’ve bought full worldwide journey once more to South Africa and out. So that can take some months to settle and get well.

NOMPU SIZIBA: So what kind of challenges have been posed to you throughout the pandemic?

FLEETWOOD GROBLER: Properly, I feel, if we take a look at the unknown pathway on how the pandemic will play out, the way you don’t have management on how the demand will play out by way of the pandemic, what we’ve realized is basically that it is advisable to take a look at the objects which you could management as administration. And for us that was the educational and that’s why we introduced these measures decisively on the onset of the pandemic. We caught to our bulletins by way of what we have been going to set out to do this we may management. I need to say that’s the factor that underscored, ultimately, the turning of the ship – in that it is advisable to have a decisive plan and it is advisable to execute on that, which you could management what’s underneath your management. You may’t management the oil worth, you possibly can’t management how lengthy the pandemic goes to be round, however you possibly can management your prices. You may management your capex, in addition to you divestment technique according to our strategic intent.

NOMPU SIZIBA: I do know in fact that on the govt degree there’s been some kind of pay sacrifice. How lengthy is that going to go on for , and at what level do you return to “regular”?

FLEETWOOD GROBLER: So after I replicate on final 12 months, we didn’t have any pay will increase within the regular cycle. Often within the September/October cycle we’d see some will increase. We didn’t try this. We didn’t pay out any bonuses by way of your annual bonus that was due final 12 months.

You may argue which you could’t try this for ever and a day, so it is advisable to begin recognising that persons are due for bonuses, and that will increase want to start out being re-instituted once more. So I consider that after we issue on this 12 months, we’ve bought fairly a KPI scorecard that we’ve got to ship on to get consideration for bonuses to be paid out once more. After all, it’s a board determination whether or not we are able to afford it or not. However I do consider that that within the regular course of enterprise we are going to take into account each these objects in the direction of the top of the 12 months, topic to the evaluate of the place and what the efficiency of the enterprise is at that stage.

NOMPU SIZIBA: So it’s notable that, regardless of the nice numbers efficiency, there is no such thing as a interim dividend. What different work must be completed? I do know you stated lots of stuff on the prime of our dialog, however what different work must be completed so that you can fine-tune the steadiness sheet to a degree the place you’ll begin intimating to shareholders that one thing could also be coming their method?

FLEETWOOD GROBLER: That’s an excellent query. A number of buyers and many individuals have posed the query to us in current days. So let me place how we expect round that one.

I don’t assume we set a date for the resumption of the dividend. We don’t set a specific debt degree. What we wish to use because the set off occasion to rethink instituting a dividend is basically our net-debt-to-ebitda ratio. So we wish to, to contemplate the introduction of dividends once more after we go beneath two occasions net-debt-to-ebitda, and the trajectory is downward from that 2.2  occasions, and for that we’d additionally see that our gearing will get again to way more manageable ranges so  that we are able to proceed to pay down our debt. Our greenback debt must be within the area of $Four-6 billion. We have to make additional progress on that. However that would be the set off level.

Now, whether or not that set off level can occur within the subsequent six months, 12 months, 24 months, we don’t know precisely. However what we did say at present is that it’s inside our grasp within the interval as much as 2023. And when the set off occurs, it might be even shorter than that, after which we are going to announce that we’re good to start out contemplating paying dividends once more. So it’s extra a set off than an absolute date in time.

NOMPU SIZIBA: I hear you. So the next oil worth and a weaker rand-exchange charge are inclined to bode effectively in your favour. However, other than that mixture, which is a little bit of a fluke, what are you doing to make sure that – on the danger of you having to repeat your self – what are you doing to make sure that Sasol is ready to ship first rate returns for shareholders, it doesn’t matter what occurs with these variables? And what’s the outlook for 2021?

FLEETWOOD GROBLER: What can we stated is that we have to reposition the enterprise to be sustainably worthwhile at an oil worth of $45/barrel. We all know at present that the oil worth is larger than that. We additionally know that the market may be very unstable. Opec can come to lose it, it appears shale oil may be coming again in abundance, and that may put strain on oil pricing once more. So we aren’t guided by present costs and a few of the market analysts who say the oil worth can go even larger. We’re getting ready ourselves for very sturdy operations, and to be worthwhile at a $45 oil-price degree.

That’s the place Sasol is available in, which is the transformation programme that we introduced final 12 months. That may convey a particular value discount primarily based on our 2020 baseline of R8-10 billion. It additionally will increase our gross margin to R6-Eight billion. And it units to handle our sustenance capital inside a spread of R20-25 billion. Now, when you take all of these three issues collectively, we are going to use these as the principle leaders to be sustainably worthwhile, and never solely the windfall if all costs do go up a bit. That’s not what we financial institution on. We financial institution on doing these measures in order that we are able to handle in a unstable macro setting

NOMPU SIZIBA: And simply tapping onto what you stated about “sustainably worthwhile, you probably did come out a couple of months in the past along with your climate-mitigation plan. How is that coming alongside? And simply give us a fast reminder about what the long-term plan is. And have you ever hit the bottom working but in starting the measures to start to do your half?

FLEETWOOD GROBLER: Sure, precisely. We communicated our 2030 roadmap and our targets. So we’re effectively underneath method on the entire measures that we’ve got to start out delivering. So let me remind everybody that we indicated that we’d do a 10% discount absolute from our 2017 baseline. It includes power efficiencies, it includes introducing renewable power to our operations. And within the announcement at present we’ve got, as a part of that plan, indicated final 12 months that we are going to introduce 600 megawatts of renewable power into our operations in South Africa. We now have upped that concentrate on now to 900 megawatts in collaboration with our associate …… in Secunda. That may be a tangible improve in our ambitions for renewable power.

So in all of the areas that we indicated final 12 months we’ve got began with plans. We’re taking the primary steps. We now have gone to market to gauge curiosity in renewable power and we have been overwhelmed with the response. We’re about to award two 10-megawatt tranches in Sasolburg and Secunda. That adjudication of the bidders is ongoing, and we hope to get to an announcement within the subsequent month after that adjudication, and to let these first two tranches be applied.

And so all of those factors are regular steps in the direction of our dedicated targets. And, on prime of that, we’re busy growing our 2050 ambition and key factors of the roadmap to get to that. That in fact we are going to announce at our capital markets day in the direction of the top of the 12 months, or nonetheless inside this 12 months, and hopefully that can provide additional granularity about how we expect and the steps we plan to take to cut back our footprint.

NOMPU SIZIBA: That was Fleetwood Grobler, the president and CEO at Sasol.