Sasol Limited — Form 20-F summary
Business context and reporting period
Sasol is a South African energy and chemicals company with operations in 22 countries. This annual report, filed 31 August 2022, covers the financial year ended 30 June 2022, with comparisons to the years ended 30 June 2021 and 2020. It is not a standalone 2021 Q4 report. Financial statements are prepared under IFRS and reported in rand (R).
Financial performance and liquidity
- Turnover: R275.7 billion, up 37% from R201.9 billion. Higher product prices added R96.0 billion; lower volumes reduced turnover by R16.2 billion.
- Operating costs and expenses: R227.4 billion, up 40%, including higher feedstock and energy costs and R18.3 billion of derivative losses.
- EBIT: profit of R61.4 billion, compared with R16.6 billion in 2021. Earnings: R41.7 billion, compared with R10.5 billion. Net finance costs were R5.9 billion; tax expense was R13.9 billion.
- Remeasurement items: net gain of R9.9 billion, versus a net expense of R23.2 billion in 2021. These items materially affect year-on-year comparisons.
- Cash flow: cash generated by operating activities was R56.1 billion; net cash retained from operating activities was R40.3 billion. Investing activities used R15.1 billion, including R23.3 billion of additions to non-current assets. Financing activities used R15.0 billion.
- Debt and liquidity: total debt was R121.1 billion and net debt R80.5 billion, down from R89.2 billion net debt in 2021. The covenant net-debt-to-EBITDA ratio was 0.84 times. Management reported liquidity headroom above US$1 billion and stated working capital was sufficient for present requirements.
- Margins and segments: reported EBIT margins were 27% for Fuels, 36% for Chemicals Africa, 2% for Chemicals America, and 14% for Chemicals Eurasia. Gas EBIT included significant disposal gains; its reported margin exceeds 100%.
Material changes versus 2021
- Results improved substantially, reflecting stronger oil and chemicals prices, recovering demand and a much smaller impairment burden. Fuels moved from an R18.2 billion EBIT loss to R28.0 billion profit; Chemicals Africa EBIT rose to R24.1 billion from R7.0 billion.
- Group turnover growth was price-led, while total volumes were lower. Chemicals Africa volumes fell 14%; Chemicals Eurasia volumes fell 11%, partly due to the wax-business disposal.
- Gas EBIT rose to R14.6 billion from R6.7 billion, including gains on disposals of Canadian assets, ROMPCO interest and CTRG. The Canadian asset and ROMPCO transactions generated reported disposal gains of R4.9 billion and R3.7 billion, respectively.
- Cash generated from operations rose to R56.1 billion from R45.1 billion. Net debt declined by R8.6 billion.
Outlook, commentary, risks and unusual items
- Management said the Mozambique PSA project, approved at an estimated cost of US$760 million, was progressing to plan and within approved commitments; completion was planned for the second quarter of calendar 2024.
- Sasol’s capital allocation framework conditions for dividend reinstatement had been met at 30 June 2022, but the filing does not promise a dividend. Any distribution remains subject to board discretion, investment needs, financial conditions and South African solvency and liquidity requirements.
- Key risks include commodity-price and exchange-rate volatility, inflation and supply-chain constraints, operational interruptions and South African electricity and transport constraints, debt refinancing and covenant compliance, and execution of the Sasol 2.0 cash-conservation programme.
- Climate transition and regulation are material risks: South African carbon taxes, emissions requirements and potential carbon budgets could raise costs, require investment and affect competitiveness. Sasol targets a 30% reduction in Scope 1 and 2 emissions by 2030 from a 2017 baseline and has a 2050 net-zero ambition; delivery depends on technology, affordable lower-carbon feedstocks and enabling infrastructure.
- Control weakness: management and PwC concluded internal control over financial reporting was ineffective at year-end because of a material weakness in the precision of impairment assessments across the South African integrated value chain. Remediation was ongoing. PwC nevertheless opined that the IFRS financial statements fairly presented the company’s financial position, results and cash flows.
- Contingencies: a R2.65 billion potential tax exposure relating to Sasol Financing International is disclosed as a contingent liability. The environmental obligation accrued was R17.2 billion. A R624 million Transnet tariff claim was recorded as a payable. The securities class action settlement was approved in August 2022, after year-end.
- Coal production challenges, flooding-related shipment delays, lower Secunda output and higher maintenance, energy and feedstock costs affected operations. The filing also notes legal and regulatory proceedings, including environmental criminal proceedings concerning Secunda, with an initial court appearance scheduled for September 2022.
Most important facts for investors to verify
- Review audited cash flow, debt maturities, available facilities, covenant definitions and the sustainability of the reported 0.84-times leverage ratio.
- Separate recurring operating performance from the R9.9 billion net remeasurement gain, derivative losses and disposal gains, and assess how these affect earnings quality.
- Track remediation and independent testing of the impairment-control material weakness, including any later filings or restatements.
- Verify PSA cost, schedule and production milestones, and the implications of forecast declines in Mozambique gas supply from 2024.
- Monitor the outcome and potential financial impact of the tax, gas-pricing, Transnet, environmental and other legal proceedings, as well as carbon-tax and emissions compliance requirements.