Sasol announced a return to profitability in what CEO Fleetwood Grobler described as a watershed year for the group. Sasol met and exceeded its short-term goals, and also completed most of what it set out to do to ensure long-term sustainability.
The ambitious Lake Charles Chemical Project (LCCP), which nearly sunk the company, has been competed and all units are in profitable production. Parts of the plant that were shut down or damaged due to the hurricanes are also back in production. Grobler noted that it was the worst hurricane season in the United States in more than 50 years.
In addition, asset sales for $ 3.5 billion have been concluded to reduce the debt within the parameters agreed with the creditors. Profits were recovered to R10.5 billion in the year to June 2021 compared to the loss of R91.9 billion in the previous financial year.
Sasol posted earnings per share of R39.53, a big improvement over the loss of R11.50 the previous year.
Summary of annual results and share price behavior
|12m to June (Rm)||2021||2020||% change|
|Income||201 910||190 367||6.1%|
|Ebitda||48 420||34 976||38.4%|
|Profits||10 532||-91 917||> 100%|
|Title EPS||39.53 R||-R11.50||> 100%|
|DPS||R 0||R 0||–|
|Share price||208.57 R|
|12 m high||266.54 R|
|12m under||71.22 R|
Source: Sasol announcement and JSE data
Grobler says the overall financial performance was based on strong performance in costs, working capital and capital expenditures that generated approximately $ 2.4 billion in savings, compared to a goal of $ 1 billion.
“More generally, the chemicals business benefited from higher chemicals prices and stronger demand, particularly in the second half of the year with a notable increase in gross margin. In the energy business, easing of lockdown restrictions in South Africa contributed to higher demand for liquid fuels, supported by higher prices for Brent crude.
“Building on this stronger balance sheet and business foundation, we launched our new operating model on June 1, 2021. The program is expected to deliver sustainable improvements during the five-year implementation phase to ensure the company is competitive, highly cash-generating and sustainably profitable even in a low oil price environment, ”says Grobler.
“We also significantly strengthened the balance sheet and mitigated the need for a rights issue due to excellent progress in our self-help initiatives and asset divestment program along with an improved macroeconomic environment,” Grobler announced to shareholders.
Paul Victor, CFO, commented in a presentation to shareholders, analysts and reporters that Sasol’s asset sales program has been largely completed and that $ 3.5 billion of the $ 3.8 billion in asset sales has been completed. projected. “The winnings have been deposited,” says Victor.
Asset sales and return to profitability further reduced debt. “Risk has been removed from the balance sheet,” says Grobler.
Financial statements show that gross debt has been reduced by more than R100 billion since a year ago. Non-current liabilities decreased from R225.5 billion at the end of fiscal year 2020 to R150.7 billion at the end of June 2021 and current liabilities decreased from R87.6 billion to R53.9 billion, which is equivalent to a total decrease of more than 100 billion rand.
Victor points out that the group is within the debt agreement of 3.5 times the debt to earnings before interest, taxes, depreciation and amortization (Ebitda). The ratio dropped to 1.5 times compared to 4.3 times on June 30, 2020, when Sasol had to ask creditors to allow the higher ratio.
This puts Sasol on a more secure footing for the future, as the group also issued new bonds worth $ 1.5 billion. One benefit of the new bonds is that they allowed future debt maturity dates to be balanced.
Therefore, Sasol announced that a rights issue will not be necessary.
However, management says the board decided not to declare dividends yet. “Restoring dividends is a key priority, but in the context of the high level of macroeconomic uncertainty, the directors believe it is prudent not to declare a dividend at this stage,” says Grobler.
Despite the absence of dividends, shareholders should be satisfied with their investment in the last year. The share price recovered from its intraday low of R77 at the end of October 2020 to the current R208 per share, although investors were down 5% of the price after reading the results this morning.
The new positive earnings per share put the stock at a low price / earnings (PE) ratio of 5.3 times compared to around 8 times that investors were used to in the past.
The PE also seems reasonable considering the administration’s forecast for the new financial year. “We expect strong overall operating performance for the year ending June 30, 2022,” says Grobler.
This is based on a recovery in extraction volumes, the noted increase in crude oil prices, a recovery in liquid fuel volumes in the absence of more Covid-19 blockages, and further growth in production and demand for LCCP chemicals. As a consequence, management expects the debt / Ebitda ratio to remain stable or decrease even more, between 1 and 1.8 times.
Who knows, it might even be possible to get a dividend next year.