Sasol Ltd. (SSL) announced better-than-expected results for the fiscal year ended June 30, 2010, aided by higher oil prices and improved production volumes, but partially offset by an unfavorable exchange rate.
The South Africa-based petrochemicals group reported headline earnings per share, excluding one-time items, of R26.44, or $3.70, beating the Zacks Consensus Estimate of $3.62. Sasol earned R25.25 during the corresponding period last year. However, operating profit declined nearly 3% to R23.9 billion.
South African Energy Cluster
Within its South African energy cluster, Sasol Mining’s operating income plummeted 49% to R815 million, hampered by lower US dollar coal prices together with unfavorable currency fluctuations and increased pre-feasibility costs on Project Mafutha (a proposed coal-to-liquids project). This was partially offset by higher coal prices, improved production volumes, and lower costs per unit.
Sasol Gas generated an operating profit of R2.5 billion, up 2% year-over-year. The positive comparison can be attributed to higher sales volumes, somewhat negated by lower gas prices.
Sasol Synfuels’ operating profit fell 48% to R13.2 billion, mainly reflecting unfavorable exchange rates, partially canceled by higher average oil prices, increased production volumes, and reduced unit cash costs.
Sasol Oil reported an operating profit of R1.4 billion as against an operating loss of R351 million in the prior year period. The profit primarily resulted from increased production and sales volumes, in tandem with less volatile crude oil prices. To some extent, these factors were offset by exchange rate fluctuations and weaker refining margins.
International Energy Cluster
Sasol Synfuels International recorded an operating profit of R131 million, significantly recovering from the operating loss of R235 million during the previous year. The improvement was due to higher crude oil prices and the absence of a one-off loss realized in the prior-year period. This was partly negated by lower production at the Oryx gas-to-liquids plant in Qatar and unfavorable currency fluctuations.
Sasol Petroleum International’s operating profit was down 70% year-over-year to R337 million, mainly reflecting lower sales volumes from the Etame oil field cluster in Gabon and an unfavorable exchange rate. Higher energy prices partially offset these effects.
Chemical Cluster
Sasol Polymers reported an operating profit of R958 million, up slightly from R946 million achieved in the prior year comparable period. The segment results were favorably affected by increased sales volumes and a reduction in fixed costs, partially offset by foreign exchange translation differences.
Sasol Solvents’ operating income was up 133% from the previous year level to R1.2 billion, as improved sales volumes, stronger margins, and a reduction in cash fixed costs were partly offset by the strength of the rand against the US dollar.
Sasol Olefins & Surfactants reported an operating profit of R2.5 billion, as against a loss of R160 million during last year. The positive comparison came on the back of improved margins, partly offset by foreign exchange impacts. Additionally, the segment’s turnaround and restructuring activities have begun to show results.
Operating Cash Flow & Capex
Sasol generated R27.3 billion in operating cash flows, a 43% year-over-year decrease, primarily due to increased working capital. The company spent R16.1 billion in capital expenditures during the period.
Dividend
The company announced a final cash dividend of R7.70 per share. The dividend will be paid on October 18 to shareholders of record as on October 15, 2010. The holders of American Depositary Receipts (“ADRs”) will be paid on October 29, 2010.
Outlook
Looking ahead, Sasol management remains cautious in its fiscal 2011 outlook. The company sees some signs of demand and price recovery but at the same time reiterated that economic conditions still remain challenging. A stronger Rand/U.S. dollar exchange rate and weaker refining margins are the main concerns.
In response to the global economic crisis, Sasol has acted swiftly to improve its competitiveness and make the business more robust. The company has adopted a cash conservation approach and reduced its capital expenditure forecast for the three year period (2009 – 2011) by approximately 40%.
Additionally, Sasol has restructured businesses (where required) and accelerated programs across the group aimed at improving efficiencies and cutting unit costs.
This is expected to position the company for sustainable, long-term profitability and growth.
Company Overview
Sasol Limited is engaged in the mining and processing of coal. It also produces chemicals, explores and refines crude oil, and manufactures fertilizers and explosives. In addition, it converts coal to petrochemicals products, such as diesel fuels and gasoline.
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