Sasol delivers interim earnings in volatile environment

Key messages

• Our strive towards zero harm remains an embedded priority.
• Pricing and demand volatility, weaker global growth rates continued into H1 FY24, constraining cash generation of the business.
• Successful Secunda Operations phase shutdown and improved stability offset by lower performance at Mining.

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Sasol’s performance for the first six months of 2024 continued to be negatively impacted by the continued volatile macroeconomic environment, with weaker oil and petrochemical prices, unstable product demand and continued inflationary pressure. Despite some operational improvements in South Africa, persistent underperformance of the state-owned enterprises involved in Sasol’s value chain and the weaker global growth outlook continue to impact Sasol’s business performance.

• Revenue of R136,3 billion is lower than the prior period of R149,8 billion, mainly as a result of the lower chemical product prices across all regions.
• Earnings before interest and tax (EBIT) of R15,9 billion is R8,3 billion (34%) lower than the prior period.

The variance to the prior period is mainly due to lower revenue and lower gains on the valuation of financial instruments and derivative contracts, offset by lower chemical feedstock prices in Europe, Asia and the United States of America (US).

The current period includes remeasurement items of R5,8 billion mainly due to:

• Impairments of the Secunda liquid fuels refinery cash generating unit (CGU) of R3,9 billion driven by a further deterioration assumed of the macroeconomic outlook, including Brent crude oil and electricity prices, resulting in the full amount of capital expenditure incurred during the period being impaired; and
• Impairments of the Chemicals Africa Chlor-Alkali & PVC and Polyethylene CGUs of R1,2 billion due to lower selling prices associated with reduced market demand.

The prior period included impairments of R6,4 billion mainly due to the Secunda liquid fuels
refinery CGU (R8,1 billion), Chemicals SA Wax CGU (R0,9 billion), China Essential Care
Chemicals CGU (R0,9 billion), offset by a reversal of the US Tetramerisation CGU impairment (R3,6 billion).

The Energy business, including Mining, EBIT increased by 22% to R12,9 billion compared to the prior period with both periods impacted by remeasurement items. Excluding remeasurement items, EBIT decreased by 10% due to lower export coal prices, higher external coal purchases to support Secunda Operations (SO) coal requirements and increased maintenance and electricity expenditure. This was partially offset by improved production at SO, better refining margins, higher export coal sales volumes and the weaker exchange rate.

EBIT for the Chemicals business decreased by 93% to R0,7 billion, compared to the EBIT of R9,6 billion in the prior period with both the current and prior periods impacted by remeasurement items. Excluding remeasurement items, EBIT decreased by 68% compared to the prior period with margins and associated profitability under pressure due to challenging market conditions.

These conditions included macroeconomic weakness especially in China and Europe and continued customer destocking which negatively impacted demand. The average sales basket price for the first half of 2024 (H1 FY24) was 24% lower than the first half of 2023 (H1 FY23), driven by a combination of lower oil, feedstock and energy prices and weak market demand. Despite these continued market headwinds, H1 FY24 total chemicals sales volumes were 4% higher than H1 FY23, largely due to higher ethylene and polyethylene sales in the US, improved production and supply chain performance in Africa offset by continued lower demand in Eurasia.

Core HEPS decreased from R24,55 per share in the prior period to R18,39 per share. The decrease in Core HEPS is due to the decline in EBIT detailed above.

At 31 December 2023, our total debt was R124,1 billion (US$6,8 billion) compared to R124,3 billion (US$6,6 billion) at 30 June 2023. Sasol issued R2,4 billion in the local debt market under the domestic medium term note (DMTN) programme during the reporting period. The US$1,5 billion (R27,5 billion) bond will be repaid in March 2024.

Cash generated by operating activities decreased by 31% to R14,7 billion compared to the prior period in line with the decrease in EBIT and the movement in working capital.

Capital expenditure, excluding movement in capital project related payables, amounted to R15,9 billion compared to R15,6 billion during the prior period. Capital expenditure relates mainly to Secunda shutdown activities, the Mozambique drilling campaign and continued spend on Synfuels renewal and environmental compliance activities.

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