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Shareholders cannot complain that Sasol keeps them in the dark. As promised, management hosted another of their investor updates to report on the progress of their recovery plan, with CEO Fleetwood Grobler and CFO Paul Victor discussing how things are going.
Grobler’s opening remarks are worth mentioning: “It was an extraordinary year. The oil price collapse could not have come at a worse time for Sasol. It was our hardest year on record. ”
The investor update follows the formal announcement early in the morning that most of the conditions for the sale of a 50% stake in a portion of the Lake Charles Chemical Project (LCCP) have been met and that Sasol will soon receive $ 2 billion in cash to bolster your stressed balance sheet.
Sasol previously announced that it would enter into a joint venture with LyondellBasell regarding its base chemicals business at LCCP, which will result in the latter purchasing a 50% stake in the unit.
The transaction was approved by shareholders at a recent general meeting, which resulted in the establishment of the Louisiana Integrated Polyethylene joint venture to be managed by LyondellBasell.
Read: Sasol’s JV with LyondellBasell Now Established
“Under the terms of the transaction agreements, LyondellBasell will operate the assets of the joint venture on behalf of the company and will market the polyethylene products on behalf of the two shareholders,” according to the announcement, which states that the earnings of approximately $ 2 one billion will be received in the next few days.
This is just part of Sasol’s ongoing restructuring process.
Sale of assets
Grobler says the sale of assets scheduled for disposal is going well, ahead of schedule, in fact. The goal of raising more than $ 3.5 billion in asset sales has been largely achieved, with agreements in place for most disposals.
“We are moving away from businesses where we don’t have a competitive advantage,” says Grobler.
Once again, Grobler stressed the need for change. The first objective is to financially stabilize Sasol in the short term by reducing leverage and restructuring the group to operate competitively in a volatile macroeconomic environment that generally results in low oil prices.
Resilience
While Sasol’s stated goal is to position the business to be “resilient” in an environment of an oil price of around $ 45 a barrel, the latest presentation creates the impression that the Sasol of the future will be quite happy there.
Management mentions in the presentation that the operations of SA de Sasol 2.0 will be about to reach an oil price of $ 30 to $ 35 per barrel and an exchange rate of R15.70 per dollar.
Victor says that Sasol’s renewal is based on clear objectives. “The goal is to make Sasol more competitive and allow the group to generate strong cash flow.”
The group has set four main objectives:
- Reduce fixed cash cost by 15% to 20%, which is equivalent to a reduction in total overhead costs between R8 billion and R10 billion. This will be achieved by building efficient operations and reducing costs to levels comparable to the industry.
- Increase gross margins by 5% to 10%, which will generate additional revenue of R6 billion to R8 billion. Again, Sasol mentions that more efficient operations are the key, along with optimizing its business portfolio towards more lucrative performance and specialty chemicals.
- Reduce capital spending by between R20 billion and R25 billion per year, primarily by prioritizing capital spending.
- And reducing working capital to levels found in other parts of the industry, which translates to reducing working capital within Sasol to around 14%.
The formal announcement published on the JSE Sens service on Wednesday morning also informed shareholders that Sasol has successfully renegotiated the terms of its debt levels with its bankers. “Sasol is also pleased to announce the successful conclusion of discussions with our lenders regarding the agreement amendment by December 31, 2020, which is 4 times net debt: earnings before interest, taxes, depreciation and amortization ( Ebitda), “the ad reads.
Additionally, the lenders have agreed that the settlement calculation will not be affected by one-time events or any delay in the receipt of proceeds from the disposition of the LCCP units (due December 31).
Both Victor and Grobler seemed more comfortable on the debt issue in their presentation to investors, citing success in cutting costs, reducing debt through divestitures and improved cash flow, and the prospect of strong demand for energy and chemicals.
Clear roadmap
Victor put a clear roadmap on the table: this year is the year to restore balance, 2023/24 is the year to boost free cash flow and reduce debt to twice the net debt to Ebitda, and 2025 and further is the time to improve shareholder profitability.
While the option of a rights issue is still on the table, depending on the success of squeezing efficiency and withdrawing cash from companies, as well as general economic conditions, the two top managers at Sasol were even talking about dividends within. of a few years. .
They also mentioned that the new Sasol must be in a position to consider new investments and improve shareholder profitability by buying back shares.
Important promises
It’s very interesting that Sasol’s management is optimistic about the prospects and actually makes some pretty big promises.
Most notable is the goal of restoring Sasol as a top-tier investment.
Sasol is one of the most popular and widely owned shares in SA, and most unit trusts and pension funds own some.
The latest annual report indicates that Sasol has more than 175,000 shareholders who own approximately 84% of the shares, including shares held by trust companies, asset managers and pension funds (almost 50%).
Despite Sasol’s international exposure and its listing on global markets, around 70% of the shares are still owned by local shareholders. This equates to about R53 billion at current share price, reason enough for Sasol to top the charts of stocks most viewed by investors on all popular South African equity trading platforms.
Listen to Nompu Siziba’s interview with Sasol CEO Fleetwood Grobler (or read the transcript here):
