Sasol passed its final dividend for the year to June 30, after its board revised the dividend policy so that it is paid from 30% of free cash-flow generated, provided that net debt is below $4 billion (R71.2bn) – at year-end, the net debt was $4.1bn which exceeded the new debt trigger.
President and CEO of the group that provides employment for more than 500 000 people Simon Baloyi said they would, in the new financial year focus on improving free cash-flow generation and better returns for shareholders. The full-year dividend thus came to R2 per share, which was paid out at the interim stage.
Sanlam Private Wealth Investment analyst Christiaan Bothma said the decision to rebase the dividend to free cash flow was widely expected given the increasing disconnect between earnings and cash flows.
“We think that prioritising debt reduction is the right decision at this stage of the cycle. It was encouraging to finally see some fruit from their cost-savings initiatives, with fixed costs increasing by only 1% year on year. These savings, along with better working capital management, resulted in much-improved cash generation for the second half,” said Bothma.
Sasol reported a R27.3bn loss before interest and tax (Lbit), compared to earnings before interest and tax (Ebit) of R21.5bn in the prior year. This sharp decline was mainly due to increased asset impairments, lower earnings before interest, tax, depreciation and amortisation, translation losses and reduced derivative gains.
Bothma said the results were negatively impacted by very weak chemical markets as well as the continued underperformance at their coal mines, leading to below-optimal output from their largest factory in Secunda.
Sasol said an impairment loss of R56.7bn net of tax related to the Chemicals America Ethane value chain (alcohols, alumina, ethylene oxide, ethylene glycol and associated shared assets) cash-generating unit (CGU) of R45.5bn net of tax. These impairments were driven by the prolonged softer market pricing and outlook.
A R3.9bn impairment related to the Chemicals Africa Polyethylene, Chlor-Alkali & Polyvinyl Chloride, and South African Wax value chain CGUs, of which R0.9bn was impaired at December 31, 2023. The further impairment related to the Polyethylene CGU as a result of oversupply and reduced demand in the global market.
A R5.7bn taxed impairment related to the Secunda liquid fuels refinery CGU.
The prior year included gross impairments of R33.7bn mainly due to the Secunda liquid fuels refinery CGU, South African Wax value chain CGU, China Essential Care Chemicals CGU offset by a R3.6bn reversal of the US Tetramerisation CGU impairment.
Sasol said challenging market conditions, with pressure from tight margins and depressed chemicals prices, resulted in turnover of R275.1bn being 5% lower than the prior year.
These factors were partially offset by the stronger rand oil price, improved refining margins, reduced total costs and higher sales volumes. A stronger operational performance in the fourth quarter contributed to an overall stronger performance in the second half of the year. There were five work-related fatalities and Baloyi said their safety record was “not good enough”.
He said their five-year Sasol 2.0 transformation programme launched in 2020 had already resulted in R16bn of cumulative earnings before interest tax and depreciation allowance enhancements delivered by the end of the 2024, and R2.4bn more of these enhancements were expected in the new financial year.
BUSINESS REPORT