Sasol Limited — Form 20-F summary
Period clarification: The supplied filing is Sasol’s annual report for the year ended 30 June 2020, filed 24 August 2020—not a 2019 Q4 filing. It reports in South African rand (R) under IFRS; amounts below are generally R millions unless stated otherwise.
Business context and reporting period
Sasol is an integrated international chemicals and energy company, with substantial operations in South Africa and businesses in North America, Europe, Africa and the Middle East. FY2020 results reflect the COVID-19 demand shock, lower oil prices, a weaker rand, and the continued ramp-up of the Lake Charles Chemicals Project (LCCP).
Financial performance, cash flow and balance sheet
| Metric | FY2020 | FY2019 | Change or context |
|---|---|---|---|
| Turnover | R190,367m | R203,576m | Down 6%; lower product prices, particularly crude-linked prices, more than offset currency and volume effects. |
| Operating costs and expenses | R190,216m | R176,308m | Up 8%. |
| Loss before interest and tax | R111,030m | Profit R9,697m | Included R110,834m of net remeasurement expenses. |
| Net finance costs | R6,381m | R466m | Higher as LCCP assets entered service and lease accounting changed. |
| Loss for the year | R91,272m | Profit R6,074m | Loss attributable to Sasol owners was R91,109m; basic loss per share was R147.45. |
| Operating cash generated | R42,384m | R51,398m | Down 18%. |
| Net cash retained from operating activities | R29,730m | R31,943m | After tax and dividends paid. |
| Net cash used in investing activities | R38,550m | R56,412m | Included R41,935m additions to non-current assets; R13.8bn related to LCCP. |
| Total debt / net debt | R207,449m / R174,517m | R138,636m / R125,239m | Debt rose substantially; cash excluding restricted cash was R32,932m. |
| Assets / equity / liabilities | R479,162m / R159,248m / R319,914m | R469,968m / R225,795m / R244,173m | Equity declined and liabilities increased. |
Major impairments drove the loss: the filing reports R110.834bn of net remeasurement items, including substantial write-downs in chemicals and South African operations. The auditor identifies a R111.592bn impairment charge in its critical audit matter discussion. These amounts are presented under different disclosures; investors should verify the detailed reconciliation in the financial statement notes.
Liquidity headroom was reported above US$2.5bn at year-end, but management said covenant compliance and debt repayment depended on cash generation, asset disposals and a successful equity raise. The auditor highlighted substantial doubt about the company’s ability to continue as a going concern, while issuing an unmodified opinion on the financial statements.
Material changes versus FY2019
- Turnover fell 6%, while Sasol moved from FY2019 profit to a large FY2020 loss, principally because of impairments, lower oil prices and pandemic-related demand and margin pressure.
- Net debt increased by R49.3bn to R174.5bn. The weaker closing rand increased the rand value of foreign-currency debt; closing USD exchange rates were R17.33 per dollar in 2020 versus R14.08 in 2019.
- Operating cash generation weakened, although management reported R5.8bn of working-capital reduction during the year.
- FY2020 dividends were nil, compared with R5.90 per share in FY2019. Dividends were suspended amid leverage and liquidity concerns.
- IFRS 16 leases was adopted from 1 July 2019 using the modified retrospective approach, affecting comparability of lease costs, assets and liabilities.
Outlook, management commentary, risks and unusual items
- Funding and covenants: Lenders waived the net debt/EBITDA test for 30 June 2020 and set a 4.0x maximum for 31 December 2020, reverting to 3.0x at 30 June 2021. The amendments restrict dividends, acquisitions and FY2021 capital expenditure above the forecast R21bn by more than 10%. A US$1bn syndicated loan matures in June 2021.
- Capital and asset sales: Sasol’s response plan targeted US$6bn of cash conservation over FY2020–FY2021. It reported exceeding its US$1bn FY2020 self-help target and targeted a further US$1bn by June 2021. Asset-disposal proceeds targeted above US$2bn; US$600m had been secured by 30 June 2020. Disposals and proceeds are not assured.
- Potential rights offer: Sasol said it would pursue a rights offering of up to US$2bn in the second half of 2021, subject to market conditions and shareholder approvals. Participation restrictions in some jurisdictions could dilute certain holders.
- LCCP: Project completion was 99% at 30 June 2020, with reported cost guidance of US$12.8bn. The damaged LDPE plant was expected to enter beneficial operation by end-October 2020. Ramp-up, project assumptions and the asset-disposal process remain important uncertainties.
- Internal controls: Management and PwC reported ineffective internal control over financial reporting, citing material weaknesses in LCCP capital-cost estimation and the precision of impairment reviews for certain South African cash-generating units. Remediation was ongoing.
- Other exposures: Key risks include COVID-19 and commodity-market volatility; foreign exchange and refinancing; carbon tax and emissions compliance; regulatory and gas-pricing proceedings; and litigation, including a US securities class action and a R2.5bn contingent tax exposure relating to Sasol Financing International.
- Environmental obligations: The accrued environmental obligation was R21.790bn at 30 June 2020, versus R18.742bn a year earlier; potential losses beyond the accrued amount could not be reasonably determined.
Most important facts for investors to verify
- Reconcile the impairment and remeasurement disclosures, including the amounts attributed to held-for-sale assets and the South African integrated value chain.
- Track covenant headroom, liquidity, debt maturities and whether planned asset sales and any rights offer produce sufficient cash on acceptable terms.
- Check subsequent LCCP completion, final project cost, LDPE start-up and actual operating contribution.
- Assess progress in remediating the two material weaknesses and any later changes to the auditor’s control opinion or financial reporting.
- Review the outcome and potential financial effect of the SFI tax dispute, gas-price proceedings and securities class action.