Sasol Limited (SASOL) - Form 20-F Summary
Business Context and Reporting Period
Company: Sasol Limited (South Africa)
Filing Type: Annual Report on Form 20-F
Reporting Period: Year ended 30 June 2018
Accounting Standards: International Financial Reporting Standards (IFRS)
Currency: South African Rand (ZAR), with US Dollar (USD) translations provided for convenience.
Sasol is an international integrated chemicals and energy company. Its operations span mining, energy (synthetic fuels, gas, and power), and chemicals (base and performance). The company is heavily exposed to commodity prices (crude oil, coal, gas), foreign exchange rates (ZAR/USD), and regulatory environments in South Africa and other operating jurisdictions.
Key Financial Metrics (Year Ended 30 June 2018)
| Metric | 2018 (ZAR Millions) | 2017 (ZAR Millions) | Change |
|---|---|---|---|
| Turnover | 181,461 | 172,407 | +5% |
| Earnings Before Interest and Tax (EBIT) | 17,747 | 31,705 | -44% |
| Earnings Attributable to Owners | 8,729 | 20,374 | -57% |
| Basic Earnings Per Share (EPS) | 14.26 | 33.36 | -57% |
| Net Debt | 96,341 | 56,510 | +70% |
| Operating Cash Flow | 42,877 | 44,069 | -3% |
| Capital Expenditure (Additions to Non-Current Assets) | 55,891 | 56,812 | -2% |
Material Changes vs. Prior Period
- Profitability Decline: EBIT dropped significantly by 44% to R17.7 billion. This was primarily driven by R9.9 billion in remeasurement items (impairments) and a R2.9 billion share-based payment charge related to the new Sasol Khanyisa B-BBEE transaction.
- Impairments: Significant non-cash impairments were recognized, including:
- R5.2 billion impairment on the South African chlor-vinyls cash-generating unit due to exchange rate strengthening.
- R2.8 billion impairment on Canadian shale gas assets due to low gas prices.
- R1.1 billion impairment on Mozambique PSA assets due to lower oil volumes and macro-economic assumptions.
- Turnover Growth: Turnover increased by 5% to R181.5 billion, driven by higher crude oil prices (Brent averaged $63.62/bbl in 2018 vs $49.77/bbl in 2017), partially offset by a stronger Rand and lower volumes in some segments.
- Debt Increase: Net debt increased to R96.3 billion (from R56.5 billion) due to funding requirements for the Lake Charles Chemicals Project (LCCP) and the weakening of the closing Rand exchange rate.
Guidance, Outlook, and Risks
- Lake Charles Chemicals Project (LCCP): The US$11.13 billion project is 88% complete with capital expenditure of US$9.85 billion. First steam production was achieved in July 2018. Management expects the project to reach beneficial operation within the revised cost estimate, though IRR estimates vary (5.2% - 8.9%) depending on ethane sourcing assumptions.
- Mozambique Operations: Phase 1 and 2 drilling in the PSA area is complete. Oil reservoirs proved more complex than expected, leading to reduced volume expectations. The company is assessing options to secure gas feedstock for the Central Termica Temane (CTT) power project.
- Key Risks:
- Commodity Prices: Continued volatility in crude oil, gas, and chemical prices directly impacts margins.
- Exchange Rates: A strengthening Rand negatively impacts earnings and increases the Rand value of USD-denominated debt.
- Regulatory & Legal: Ongoing tax litigation with the South African Revenue Service (SARS) regarding crude oil procurement (potential exposure of R12.6 billion for 2013-2014) and environmental compliance challenges in South Africa.
- Climate Change: Potential carbon taxes and stricter emission standards in South Africa pose transitional risks to coal-based operations.
Investor Verification Checklist
- Tax Litigation Status: Verify the outcome of the Supreme Court of Appeal (SCA) regarding the SARS assessments for 2005-2012 and the implications for the 2013-2014 assessments.
- LCCP Economics: Confirm the final ethane sourcing strategy and its impact on the project's Internal Rate of Return (IRR) and long-term cash flows.
- Impairment Reversals: Monitor whether the R5.2 billion chlor-vinyls impairment is permanent or if market conditions could allow for a reversal.
- Debt Covenants: Review the company's ability to maintain gearing within the 20%-44% target range given the increased net debt and ongoing capital expenditure.
- Environmental Compliance: Assess the progress of retrofitting South African plants to meet 2020 emission standards and the potential costs of non-compliance or decommissioning.