Sasol Limited — Form 20-F summary
Business context and period. This is Sasol’s IFRS annual report for the year ended 30 June 2019, filed 28 October 2019—not a report for 2018 Q4. Sasol is an integrated chemicals and energy company reporting in South African rand (R); financial amounts below are in R millions unless stated otherwise.
Key financial results
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Turnover | 203,576 | 181,461 | +12% |
| EBIT | 9,697 | 17,747 | -45% |
| Earnings | 6,074 | 10,146 | -40% |
| Earnings attributable to Sasol owners | 4,298 | 8,729 | -51% |
| Basic earnings per share | R6.97 | R14.26 | Lower |
| Net cash retained from operating activities | 31,943 | 25,629 | +25% |
| Net cash used in investing activities | (56,412) | (53,979) | Higher outflow |
| Total debt | 138,636 | 111,489 | +24% |
| Net debt | 125,239 | 96,341 | +30% |
Turnover growth reflected a weaker rand, higher crude-oil prices and higher volumes. Operating costs and expenses rose 16% to R176,308 million, while remeasurement expenses increased to R18,645 million from R9,901 million. Total assets were R469,968 million and equity R225,795 million at year-end. The filing reports no clear consolidated gross-margin figure; EBIT was R9,697 million.
Operating cash generated was R51,398 million, up from R42,877 million; cash retained after tax and dividends was R31,943 million. Capital additions to non-current assets were R56,734 million, including R30.3 billion for the Lake Charles Chemicals Project (LCCP). Cash and cash equivalents available for use were R13,397 million; an additional R2,480 million was restricted. Management said available cash, operating funds and borrowing facilities should cover working capital and debt service needs for the year ahead, and described working capital as sufficient for present requirements.
Material changes and unusual items
- Despite higher turnover, EBIT declined sharply, reflecting higher operating costs and impairments. The audited statements recorded R18,451 million of impairment charges, principally affecting US chemical assets, the South African ammonia value chain and Canadian shale gas assets. The filing separately reports R18,645 million in total remeasurement items.
- Base Chemicals reported an EBIT loss of R1,431 million, compared with earnings of R918 million, affected by LCCP ramp-up costs and a R3.3 billion ammonia-value-chain impairment. Performance Chemicals reported an EBIT loss of R7,040 million, including major US asset impairments; adjusted for remeasurement and translation effects, EBIT was still lower year over year.
- Net debt rose R28.9 billion, mainly with LCCP funding and currency translation. Long-term debt increased to R137,339 million. Operating cash flow improved, but remained below investing outflows.
- The 2019 interim dividend was R5.90 per share in the selected financial data; the board passed the final dividend to protect and strengthen the balance sheet. The filing says a 2020 interim dividend would be reconsidered based on balance-sheet credit metrics.
Outlook, projects, risks and contingencies
- LCCP: At 30 June 2019, overall completion was about 98% and capital expenditure was US$11.8 billion. Management’s updated cost guidance was US$12.6–12.9 billion. The ethane cracker started in August 2019 but was operating at about 50–60% of design capacity because of acetylene-removal issues; a planned catalyst replacement was expected to address them. Remaining units were expected to complete during 2020. These are forward-looking expectations, not assurances.
- Mozambique: Appraisal results reduced expected recoverable light oil to the low end of the development-plan range—about 8 million barrels versus a stated midpoint of 55 million. Gas appraisal volumes were also at the low end of initial estimates. Sasol planned a revised integrated oil, gas and LPG development plan in 2020.
- Controls and reporting: Management and PwC concluded internal control over financial reporting was ineffective at year-end because of a material weakness in LCCP capital-cost estimation and project controls. Capital commitments disclosed for FY2018 were revised. Management said remediation was underway but not complete; PwC nevertheless gave an unqualified opinion on the IFRS financial statements.
- Liquidity and leverage: Near-term gearing target was 55–65%, including lease effects. Major capital commitments, access to financing, ratings and South Africa’s sovereign credit standing could constrain investment, debt service or dividends. The filing reports no debt defaults in FY2019 or FY2018.
- Other exposures: Commodity and exchange-rate volatility, chemical-market cyclicality, South African power and water constraints, environmental regulation and carbon tax, and project execution are material risks. Sasol estimated pre-tax South African carbon-tax liability of about R800 million–R1 billion annually in 2020, subject to allowances and tax rules.
- Legal and regulatory: A R2.4 billion potential exposure relating to Sasol Financing International tax assessments remained a contingent liability under dispute. The possible retrospective impact of NERSA’s revised maximum gas-price determination could not be estimated, and no provision was recorded. Environmental obligations accrued were R18.742 billion; additional future remediation costs were uncertain.
Most important facts for investors to verify
- Progress and final cost of LCCP, including cracker reliability, remaining unit commissioning, realized margins and any further impairment.
- Remediation and independent testing of the LCCP-related material weakness, and whether capital-commitment estimates and reporting controls are now reliable.
- Cash generation, net debt, gearing, financing availability and the board’s dividend decision as major project spending and debt obligations continue.
- Updated Mozambique field-development economics and the impact of lower oil and gas appraisal results on planned investment.
- Outcomes of the SFI tax dispute, NERSA gas-price process, environmental compliance applications and other material contingencies.