FIFI PETERS: This time last year was a dark period for Sasol, who reported a huge loss as oil prices plummeted due to Covid-19 shutdowns that shut down motorists’ demand for oil to airlines as many of us worked from home. But today is a much brighter day for Sasol, which has reported a return to earnings in the six months ending in June. Sasol CEO Fleetwood Grobler joins us in reviewing the numbers.
Fleetwood, thank you very much for your time. I must tell you that I filled up my tank last week, and now it costs me R200 more to do so as a result of what has been happening to oil prices. But, given your active participation in the sector, can you just give us an idea of the oil market and what kind of prices motorists should prepare for?
FLEETWOOD GROBLER: Fifi, thank you very much for the question and the context. We really are in a very volatile macroeconomic environment. As you can imagine, the Covid pandemic is driving this volatility. OPEC producers are trying to make sense of it – the global economic recovery – and are trying to see how the price of oil and other economic factors play out. So there are a lot of things that influence the oil price outlook. It is very difficult for us to make predictions. What we are seeing is saying that we have to be robust in an environment of lower oil prices going forward.
We believe that the price of oil could oscillate this year between $ 55 and $ 75 per barrel. Today we are just under $ 70. There was quite a reduction and we know that their political factors played a role during the weekend.
We have also seen the pandemic silenced in China, closing some ports; That can slow down economic activity, which will slow down the demand for oil. So there are many factors at play. It is very difficult to give you a number. Suffice it to say that at Sasol we try to be very robust in an environment of low and high prices.
FIFI PETERS: Well, I think we as motorists would love $ 55 / barrel; but I think your shareholders are quite happy with the $ 70 a barrel we’re currently sitting at.
Fleetwood, because many cars were sitting in their garages and carports at home due to the whole work-from-home phenomenon, we saw a reduction in demand for gasoline and petroleum-related products at service stations, which turn resulted in a number of gas stations across the country having to close. How do you see the demand levels for your oil and what is the situation in your workshops?
FLEETWOOD GROBLER: In terms of that context, when I compare the three main components of fuel, let me start with diesel. Now you know that South Africa relies heavily on road transport to distribute our products and get our products to export markets. So I am pleased to report that we are now seeing demand for diesel and sales are a little bit above pre-pandemic levels.
Regarding gasoline sales, we are slightly below; we are in the 90-100% range of pre-Covid levels.
But the biggest impact that we have yet to see return or normalize is jet fuel. There, international air travel remains quiet in that regard, and we are seeing something between 70 and 80%, even lower than before the levels of the Covid pandemic. So our perspective is to live with that. We don’t think jet fuel will rebound to pre-Covid levels this year, but we see both gasoline and diesel starting to normalize, and that’s our outlook.
FIFI PETERS: Despite perhaps lower demand from the aviation sector as a result of fewer flights, it has been a good year for Sasol. You are no longer losing; today you are reporting earnings. Just tell us about some of the things that have been good for the group from an earnings perspective and what the companies look like going forward.
FLEETWOOD GROBLER: That is a very good context to ask the question. Over the past year, there were at least three areas that played into our positive results and the position we are in.
First, it was the balance sheet reset that we announced today in terms of our asset divestment program and, of course, our operating performance as well. Putting those two together, the cash that we could get from our operating activities, that R45 billion over the past year, plus the asset divestment program, allowed us to pay off about R81 billion of debt. We reduced our US dollar denominated debt by about $ 5 billion, and now with US dollar bank debt we are just shy of $ 6 billion. We want to reduce this even further, because that is where we would like to see an absolute debt level below $ 5 billion on our US dollar debt. That is where we believe the current execution rate of operating activities and the completion of our asset divestment program may lead us towards the end of this financial year.
The other factors that have had a positive influence are, of course, the increase in the price of oil from the middle of last year to where we are now; that also bolstered our cash from operating activities. But also in the last financial year our chemicals business contributed around 60% of our Ebitda and our energy business around 40%. So the chemicals business is looking good.
And then the third item is our reboot regarding the Sasol 2.0 transformation program. We have made great strides in progress. We implement our new operating model. We have set ourselves targets that we communicated to the market in December of last year. We are making solid progress in meeting those goals. And, as we indicated today, for fiscal year 2022 our goal is to deliver an improvement of approximately R3 billion in fixed cost in cash and R1.5 billion in gross margin initiatives.
All of that is building up to the actual result of 2025, where we would improve our position compared to last year, 2020, where we would advance against the fixed cost in cash to generate an improvement of R8-10 billion in gross margin, R6‑ 8 [billion] in working capital, to achieve our 14% sustainably and to keep our sustaining capital in the range of R20-25 [billion] without compromising the integrity of our assets.
So that positions us well to be resilient in an environment of lower oil prices that we just talked about. And I think our whole drive, Fifi, is to be really robust in an environment of lower oil prices.
FIFI PETERS: Lastly, out of curiosity, how closely do you use Transnet? Several clients have complained of not being able to get their products to export markets on time due to inefficiencies in our port operator. Is this a concern or a challenge for your business?
FLEETWOOD GROBLER: So Transnet was also making an impact on our side. We have two ports through which we export. Most of our kind of container made of solid materials such as polyethylene etc. it is exported via Durban. Our liquid is mainly exported through Richards Bay. And so, yes, we were shocked, but I must say that Transnet made a very commendable effort in addressing, in the first place, the unrest situation that was affecting our ports in Durban specifically, the impact of the road, but lately [also] this ransomware attack they had to deal with. I think they have recovered well. We were shocked for about a week, but things are starting to normalize at this stage and we are seeing that we can move our products through our ports to export markets.
FIFI PETERS: Good to know. Fleetwood, we’ll leave it there. Thank you very much for your time, as always. That was the CEO of Sasol, Fleetwood Grobler.