Sasol Ltd. (SSL) announced weak results for the six months ended Dec 31, 2009, hurt by lower fuel and chemical prices on the back of falling demand, together with an unfavorable exchange rate.
The South Africa-based petrochemicals group reported headline earnings per share, excluding one-time items, of R11.26 ($1.53), down significantly from R21.54 ($2.03) earned during the corresponding period last year. Operating profit declined more than 51% to R10.5 billion.
South African Energy Cluster
Within its South African energy cluster, Sasol Mining’s operating income plummeted 88% to R170 million, hampered by lower rand export coal prices, which was offset by higher production volumes.
Sasol Gas generated an operating profit of R1.2 billion, down 19% year-over-year. The negative comparison can be attributed to lower sales volumes and lower gas prices.
Sasol Synfuels’ operating profit fell 70% to R6.1 billion, mainly reflecting unfavorable exchange rates, lower average oil prices, and increased electricity costs, somewhat cancelled by improved plant stability resulting in 3% higher production volumes and a 5% reduction in unit cash costs.
Sasol Oil reported an operating profit of R680 million as against an operating loss of R1.6 billion during the prior year period. The profit primarily resulted from increased production and sales volumes, in tandem with less volatile crude oil prices.
International Energy Cluster
Sasol Synfuels International recorded an operating profit of R112 million, down almost 90% year-over-year. The deterioration was due to lower production at the Oryx gas-to-liquids (GTL) plant in Qatar, lower oil prices, and unfavorable currency fluctuations.
Sasol Petroleum International’s operating profit was down 77% year-over-year to R231 million, mainly reflecting lower energy prices and an unfavorable exchange rate.
Sasol Polymers reported an operating loss of R137 million, as against a profit of R1.1 billion in the prior year comparable period. The segment results were adversely affected by lower polymer sales prices and foreign exchange translation differences incurred in Sasol’s international businesses.
Sasol Solvents’ operating income was down 85% from the previous year level to R204 million, as lower selling prices, unfavorable currency fluctuations, and certain production/plant interruptions hampered profitability.
Sasol Olefins & Surfactants reported an operating profit of R904 million, up significantly from the profit of R135 million achieved last year. The positive comparison came on the back of improved margins and positive stock effects, 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 R9.2 billion in operating cash flow, a 70% year-over-year decrease, primarily due to reduced operating profits and increased working capital. The company spent R6.6 billion in capital expenditures during the period.
Interim Dividend Hiked
The company announced a 12% hike in interim dividend to R2.80 per share. The dividend will be paid on Apr 12 to shareholders of record as on Apr 9, 2010. The holders of American Depositary Receipts (ADRs) will be paid on Apr 23, 2010.
Looking ahead, Sasol management remains cautious in its fiscal 2010 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 lower product prices 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.
Sasol Limited is engaged in the mining and processing of coal. It also produces chemicals, explores for 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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