SASOL S ACTING CHIEF FINANCIAL OFFICER, PAUL VICTOR INTERIM RESULTS ANNOUNCEMENT (MEDIA PRESENTATION) MONDAY, 10 MARCH 2014 AT 10H00 JOHANNESBURG

Transcription

1 SASOL S ACTING CHIEF FINANCIAL OFFICER, PAUL VICTOR INTERIM RESULTS ANNOUNCEMENT (MEDIA PRESENTATION) MONDAY, 10 MARCH 2014 AT 10H00 JOHANNESBURG AS DELIVERED Page 1 of 11

2 Slide 10: Title slide Thanks David, and good morning ladies and gentlemen. I am delighted to present the 2014 financial year interim overview to you today. The group has delivered another set of record results, well within the guided earnings range previously announced to the market. Before I move into the detail of the results, I would like to make a few introductory remarks: First, management s continued focus on factors within our control has resulted in strong overall business performance with overall improved volumes ahead of internal production targets. We have also contained the increase in normalised cash fixed costs to within inflation, despite a very challenging South African cost environment. We continue to demonstrate our commitment to our progressive dividend policy, through a record 40% increase in our interim dividend. And finally, our strong balance sheet remains resilient on the back of strong cash flow generation, which continues to position Sasol well to fund our attractive growth projects and deliver on our progressive dividend policy as well as to provide a sufficient buffer for volatility. Slide 11: Favourable macro environment (supported by weakening rand) The macro-economic environment remains volatile and uncertain. Oil prices traded in a narrow band, ending the first half of the 2014 financial year relatively flat compared to the comparable period. While the average rand/us dollar exchange rate was 19% weaker primarily due to uncertainties associated with the start of the quantitative easing tapering process in the US, Page 2 of 11

3 lingering concerns over South Africa s relatively large current account deficit and labour unrest in the South African mining sector. To contextualise the overall impact on Sasol, a weaker rand is positive for group profitability, however, it has a negative effect on cost inflation. Henry Hub prices have increased strongly as the extreme cold weather has increased demand for natural gas. We are pleased to note the positive trend in our chemical prices, which have improved from the prior year. However, the European chemicals market remained challenging, with continued margin squeeze on the back of weak demand and higher feedstock prices. Whilst in the US, the shale gas boom has boosted the US chemical industry. The Sasol business remains sensitive to significant movements in oil prices and the rand/us dollar exchange rate and we remind you of our sensitivity to each of these variables, which we issue with a health warning in uncertain markets. We estimate that a 10c change in the annual average rand/us dollar exchange rate and a $1 change in the crude oil price will affect our profit from global operations by approximately R936 million and R702 million, respectively. Slide 12: Group profitability (underpinned by SA energy) Before I move into the detail of the results, I would like to highlight that with the adoption of the new consolidation suite of accounting standards, changes are made in how certain of our investments are accounted for in our financial results. All prior year numbers have been restated accordingly. For further details, I refer you to our full results announcement. Overall, we delivered a strong group operational performance with improved sales volumes, supported by a weaker average rand/us dollar exchange rate and improved chemical prices. This translated into a 26% increase in headline earnings per share to a record R30,19 per share. Page 3 of 11

4 The first half operating profit was significantly impacted by once-off items of R5,7 billion, relating primarily to the R5,3 billion impairment of our Canadian shale gas assets. Excluding the impact of once-off items, the increase in operating profit would have been enhanced by 33% and the operating margin would have been 6% higher at 26%. Our South African energy businesses delivered another strong performance, expanding operating margins by more than 2% compared to comparable period, mainly as a result of higher production volumes, tight cost management as well as favourable rand product prices. ORYX GTL also delivered another excellent operational performance in our international energy cluster, with production performance exceeding our expectations. Our chemicals businesses have delivered improved volumes and benefited from higher chemical prices. Slide 13: Cash fixed costs (increase within inflation) As previously mentioned by David, our current normalised cash fixed cost inflation is within the South African PPI inflation trends of 6,4% for the first of half of the 2014 financial year. This is despite a challenging South African cost environment, driven by high labour, maintenance and electricity costs. Although overall we benefited from a weaker rand/us dollar and euro exchange rate, the impact of a weaker rand added a further 4,9% to total cash fixed costs. Growth and study costs added a further 0,4%, while the implementation costs of our business enhancement programme amounted to a further 0,4% or R190 million. Labour, maintenance and energy remain the main drivers of our cost base, with labour comprising approximately 55% of total cash fixed costs. Labour costs per head for the year are expected to increase ahead of PPI inflation. Energy cost inflation in South Africa is likely to be just over 7% for the 2014 financial year, based on the Eskom increase announced by NERSA. Our strategy to contain energy costs Page 4 of 11

5 has seen us successfully ramp up our electricity generation capacity in South Africa to approximately 70% of our own requirements. Our investment in plant maintenance over the past couple of years has successfully delivered plant stability and improved volumes across our key businesses. Strides taken in our business enhancement programme also contributed to this positive turn in cost trends. Slide 14: Improved operating profit (notwithstanding once-off items and year-end adjustments) Operating profit was supported by a mostly favourable macro-economic environment during the first half of the 2014 financial year. The weaker average rand/us dollar exchange rate was the largest contributor to the increase in operating profit, boosting operating profit by 37%. Improved product prices added a further 7%. It is extremely encouraging to note the positive impact of increased sales volumes of 7% across the group. This is on the back of a 7% increase in sales volumes for the 2013 financial year. The total increase over the last 18 months amounts to R3,7 billion in real terms, off a 2012 record earnings base. However, operating profit was negatively impacted by once off items of R5,7 billion, as well as year-end adjustments such as the provision for share-based payment expenses, and higher depreciation charges relating to our Canadian shale gas assets, shutdowns and statutory maintenance, as well as new plants. Slide 15: SA energy (solid performance underpins group profit) The SA Energy cluster continues to underpin the group profits and cash flow generation, with a 28% increase in operating profit. Page 5 of 11

6 Sasol Mining s operating profit increased by 4%, despite higher operating costs. Profits were supported by higher sales prices to Sasol Synfuels and the weaker rand. Sasol Gas 34% increase in operating profit includes a gain of R453 million on the disposal of our investment in Spring Lights Gas. Excluding remeasurement items, operating profit increased by 11%, supported by a 5% increase in sales volumes and marginally improved sales prices. Sasol Synfuels remains the largest contributor to the SA energy cluster s operating profit. Operating profit increased by 30% and operating margin expanded by an impressive 6,4% to 51,0%, the highest level since Profits were driven largely by the weaker rand as well as better than expected production volumes, despite the largest shutdown in Synfuels history. Management s ongoing efforts to contain costs, coupled with improved sustained plant stability resulted in cash unit costs increasing by 6,9%, in line with PPI. Sasol Oil s operating profit increased by 22%, benefiting from improved refining and sales margins. Oil s cash fixed costs increase was also contained to within inflation. Production volumes were 12% higher, largely due to a postponement of the planned shutdown at Natref to the second half of the current financial year. Slide 16: International Energy (ORYX GTL excels in performance) Focussing on our international energy cluster: Sasol Synfuels International s operating loss decreased by 4%. Growth and study costs, previously expensed, declined significantly with the US GTL project moving into FEED. This benefit was partially negated by once off items incurred by the SSI business. ORYX GTL recorded a 10% increase in operating profit, driven by increased volumes and a weaker rand. The facility achieved a year-to-date average utilisation rate of 94%, which is 4% higher than our previously guided range. ORYX GTL is the flagship for our GTL technology and its continued strong performance reinforces our GTL value proposition. Page 6 of 11

7 Sasol Petroleum International recorded a disappointing operating loss of R6,1 billion for the period. In Africa, Mozambique and Gabon performed well, delivering 6% higher volumes. We are progressing well with our growth plans in Mozambique, on which David will provide more colour. Although Gabon s oil production is slowly declining, we are maturing additional volumes to sustain the life of the asset. Our Canadian upstream assets generated an operating loss of R6,5 billion impacted by the R5,3 billion impairment, coupled with a depreciation charge of R1,3 billion. Although the asset remains under pressure in the short term due to low North American gas prices and high depreciation, cash flow from operations remains positive. We continue to execute on the approved production plan in conjunction with our now new JV partner, Progress Energy and will be able to ramp-up activities once gas prices increase. Slide 17: Canadian shale gas assets (impairment overview) In November 2013, Talisman announced that it had reached agreement to sell its 50% share in the Montney shale gas assets to Progress Energy. As previously indicated, Sasol took the decision not to exercise its right of first refusal in respect of the asset. Talisman s disposal coupled with a further decline of conditions in the North American gas market, prompted us to undertake an impairment review of our 50% share in the Montney assets. As a result of our evaluation, we impaired our Canadian shale gas asset by approximately CAD540 million or R5,3 billion to a carrying value of CAD1,1 billion. In our impairment review, we have used a more conservative gas price outlook compared to what we use in evaluating our potential GTL and chemical investment opportunities. I want to re-emphasise that, despite this impairment, we believe that our Canadian shale gas assets continue to provide a strategic hedge for our GTL plans. Page 7 of 11

8 Slide 18: Chemicals (improved volumes and margins) We have seen an overall recovery in sales prices and volumes in our chemical businesses. The focused business turnaround programme in our South African polymers business has yielded positive results. Polymers reduced its operating loss to R351 million from R1,1 billion in the comparative period. This is mainly attributable to 7% higher production volumes and improved margins. The EPU5 plant commissioned in October 2013 has brought significant stability and financial benefits to our C2 value chain. The C3 stabilisation plant, which is expected to come on stream in the middle of the current calendar year, is expected to further improve feedstock availability for the local business. Our international Polymers businesses contributed a profit of R194 million. This excludes a final disposal loss of R198m from our Arya Sasol Polymers company in Iran. Effective 16 August 2013, Sasol has no further ongoing investments in Iran. Solvents delivered strong operating results, despite a challenging economic climate. Improved sales volumes, tight cost control and a weaker rand supported the increase in operating profit to R358 million. In December 2013, we signed an agreement to dispose of most of our Solvents Germany assets. This resulted in an impairment of R466 million of our Solvents Germany assets. The disposal is still subject to approval by the European anti-trust authorities. Once approved, it is expected that a loss on disposal will be recognised in the second half of the current financial year. O&S remains the largest contributor to the chemicals cluster s operating profit and is the 2nd largest contributor to group operating profits. Operating profit increased by 75% to 2,7 billion or 40% in Euro terms to EUR204 million. Operating margins expanded almost 2% to 10,4%. Our US business continues to benefit from improved margins on low US ethane prices, coupled with higher production and sales volumes. Page 8 of 11

9 Focusing on operating profit in our other chemicals businesses: Wax increased its operating profit by 24% on the back of higher volumes, favourable prices and a weaker rand. Overall, the operating profit for this segment decreased by 34% on the back of challenging market conditions in our fertiliser and ammonia businesses. Slide 19: Investing for sustainable growth (54% of capital spend in South Africa) Our continued strong cash generation from our foundation businesses is evident from a 50% increase in cash generated by operations amounting to R28,1 billion. This, together with our deleveraged balance sheet, which reflects an ungeared position of 0,8% at half year-end, positions us uniquely to fund the steady advancement of our attractive growth projects and deliver on our progressive dividend policy. We have spent R20 billion on capital investments in the current financial year to date, in line with our expectations, of which approximately 54% was in South Africa. We have maintained our capital investment estimate for 2014 of R42 billion and R50 billion for Approximately half of these capital investments over the next two years will be spent in South Africa. A large portion of future growth capital investments will be allocated to our mega growth projects, which is in line with our growth strategy. Slide 20: We remain committed to delivering value to shareholders (record interim dividend) Taking into account our record headline earnings per share, the ongoing strength of our financial position, current capital investment plans and our progressive dividend policy, we have increased the interim dividend by 40% to a record R8,00 per share. Our dividend yield of approximately 4,0% and Total Shareholder Return of 122% in rand-terms over the past 5 years, continues to position Sasol competitively with our peer group, reinforcing our commitment to consistently return value to our shareholders. Page 9 of 11

10 Despite our recent strong share price performance, we remain confident in our ability to return further value to our shareholders through sweating our existing asset base, executing our exciting growth projects, achieving our business enhancement programme targets, as well as delivering on our progressive dividend policy. Slide 21: FY14 profit outlook (strong operational performance underpinned by volatile macroeconomic conditions) We expect macro-economic conditions to remain volatile and this impacts our assumptions in respect of the economic variables. In the near term, we anticipate stable oil prices, slightly improved US natural gas prices, a progressive recovery of chemical product prices and flat refining margins. We assume a slight strengthening in the rand/us dollar exchange rate from its current levels. We expect an overall solid production performance for the 2014 financial year: Synfuels volume guidance remains unchanged at between 7,3 and 7,5 million tons; Internationally, ORYX GTL is expected to maintain its full-year utilisation rate above 90%; and In Canada, we anticipate marginally decreased production due to reduced drilling activities and fewer new wells coming onstream. We expect normalised cash fixed costs to increase slightly above South African PPI as we incur some costs to ensure plant stability In the recent budget speech, the Finance Minister announced that the implementation of carbon tax would be postponed by a year to We continue to engage with government on the draft carbon tax legislation. Until we obtain further clarity, we are unable to provide guidance on the impact on group profits. Page 10 of 11

11 And lastly, we expect a significant improvement in Polymers profitability below our previously guided range for financial year Slide 22: Business Performance Enhancement Programme (cost savings realisation timeline) I would like to expand on what David touched on earlier in respect of our business performance enhancement programme. If you look at the graph on the screen, it provides a summary of our cost savings realisation timeline included in the programme. As David stated and based on our further analysis, we expect to generate sustainable annual savings of more than R3 billion from the 2016 financial year. Up to 40% of these savings will be achieved by the end of our 2015 financial year, with the balance realised by the following financial year, We will communicate any potential upside to these annual savings once we have embedded our new operating model and effected the related structural and process changes. We expect project implementation costs for the 2014 financial year to be approximately R1,2 billion. This will increase somewhat in the 2015 financial year when the programme reaches its peak, and will taper off in the 2016 financial year, as we finalise implementation. We expect that costs will follow PPI inflation trends from the 2016 financial year. In conclusion Management s continued focus on factors within our control has resulted in a strong overall business performance in a challenging environment and delivered record first half profitability. On that note, I will hand back to David Page 11 of 11