SASOL LIMITED FINANCIAL RESULTS for the six months ended 31 December 2017
Introduction Forward-looking statements Sasol may, in this document, make certain statements that are not historical facts that relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our future prospects, developments and business strategies. Examples of such forward-looking statements include, but are not limited to, statements regarding exchange rate fluctuations, volume growth, increases in market share, total shareholder return, executing our growth projects (including LCCP), oil and gas reserves and cost reductions, including in connection with our BPEP, RP and our business performance outlook. Words such as believe, anticipate, expect, intend", seek, will, plan, could, may, endeavour, target, forecast and project and similar expressions are intended to identify such forward-looking statements, but are not the exclusive means of identifying such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and there are risks that the predictions, forecasts, projections and other forwardlooking statements will not be achieved. If one or more of these risks materialise, or should underlying assumptions prove incorrect, our actual results may differ materially from those anticipated. You should understand that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors are discussed more fully in our most recent annual report on Form 20-F filed on 28 August 2017 and in other filings with the United States Securities and Exchange Commission. The list of factors discussed therein is not exhaustive; when relying on forward-looking statements to make investment decisions, you should carefully consider both these factors and other uncertainties and events. Forward-looking statements apply only as of the date on which they are made, and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. Please note: One billion is defined as one thousand million. bbl barrel, bscf billion standard cubic feet, mmscf million standard cubic feet, oil references brent crude, mmboe million barrels oil equivalent. All references to years refer to the financial year 30 June. Any reference to a calendar year is prefaced by the word calendar. Comprehensive additional information is available on our website: www.sasol.com 2
INTRODUCTION Bongani Nqwababa and Stephen Cornell
Key messages What you will hear today Largely strong set of results in a volatile but growing global economy Steady progress on LCCP with a drive towards commissioning, operations and business readiness Change in dividend policy to a more consistent Core HEPS base Strong balance sheet enhanced by proactive hedging programme with short- to medium-term funding plan in place Continued sustainability and heightened investment focus in Southern Africa Focused strategy and disciplined capital allocation supports compelling investment case 4
Key messages Largely strong earnings performance driven by higher oil prices OPERATIONAL PERFORMANCE Group RCR at 0,30, regrettably two fatalities Sales volumes 3% 1 for Performance Chemicals, 1% 1 for Base Chemicals, and liquid fuels 3% Synfuels Operations production volumes 1% Eurasian Operations volumes 2%, Natref volumes 21% Safety and operational challenges at Mining in ramping up to pre-strike production run-rates Successful start-up of 17 th oxygen train and Gemini HDPE; FTWEP progressing well Core HEPS up 5% to R18,22 FINANCIAL RESULTS Stronger rand per barrel price benefitting results HEPS 17% to R17,67, EPS 21% to R11,29 Response Plan delivery of R75,6bn exceeding upper-end of target with sustainable annual cash savings of R3,5bn Gearing managed to 39%, below our ceiling of 44% Normalised cash fixed costs 2% in real terms with FY18 forecast tracking our expected inflation rate of 6% Interim dividend of R5,00 per share based on Core HEPS 1. Restated for transfer of ethylene business from PC to BC 5
Key messages Steady progress on LCCP Cost and schedule on track Overall project 81% complete with construction execution at ~54% $8,8bn spent of $11,13bn project cost On track for start-up of first units in H2CY18 US tax reforms contributing ~0,5% to returns Project returns ~7,5-8,5% (previous guidance ~7-8%) Returns based on Q4CY17 spot pricing ~9-9,5% (previous guidance ~8-8,5%) Strong focus on commissioning, operations and business readiness Progressive start-up of utilities ongoing and gaining momentum Engaging prospective new markets and customers; Gemini HDPE first product to market Contracts for major distribution channels in place LCCP adds up to 20% to EBITDA by FY22 or $1,3bn real 1 1. In FY22 based on our assumptions 6
Key messages Strong balance sheet enhances shareholder value Strategy 2018 2022 Protect and strengthen the balance sheet and maintain investment grade credit ratings Target a superior dividend payout ratio of 40% on Core HEPS Incremental investment in existing assets Balance growth and value returned to shareholders Delivered through Safe, stable and reliable operations Increased cash flows supported by Continuous Improvement Continued hedging programme beyond peak gearing Optimal capital structure and funding plan with disciplined capital allocation Asset divestment opportunities with NAV 1 >US$1bn which will yield additional liquidity benefits FCF positive in FY19 Resulting in Deleveraged balance sheet, targeting 30% gearing and net debt:ebitda of 1,5-2,0x Limited shareholder dilution through Inzalo refinancing and LTI hedge options Superior value to our shareholders through dividends and growth 1. Net asset value 7
Key messages Continued sustainability and heightened investment focus in South Africa Sasol Limited B-BBEE scorecard improved from Level 8 to Level 6 and on track for at least Level 4 by 2020 R4,9bn preferential procurement from black-owned enterprises for Shareholders approved our Sasol Khanyisa B-BBEE transaction Invested >R630m in skills and socio-economic development programmes for R530m in education and skills development R100m in community development, including Sasol Ikusasa in the Metsimaholo and Govan Mbeki municipalities Invested >R20bn in SA on flagship projects over the past three years Investment of R8,7bn for in key South African industrial hubs Includes FTWEP and 17 th oxygen train project Positive SA sentiment driving increased investor confidence 8
Key messages Continued sustainability and heightened investment focus Ongoing commitment to entrench Sasol s position as a trusted partner STRONG HISTORICAL PROGRESS in Mozambique Sasol and its partners invested >US$3bn with >US$1,1bn contribution to the state Local procurement of US$1,2bn Invested US$33m mainly towards education and skills development US$285m spent on PSA drilling and surface facilities CONTINUED BENEFITS TO STAKEHOLDERS >300 permanent jobs sustained across our businesses >90% are Mozambican ~600 additional contractor job opportunities for communities around CPF Access to electricity for >2m Mozambicans through CTRG ~2 000 consumers benefitting from domestic gas reticulation systems GOING FORWARD Support in-country industrialisation and gas monetisation ambitions Further exploration to unlock beneficiation of resources Focused on increasing capacity and participation of locally owned businesses and building local SMMEs Committed to train >460 artisans for the oil and gas sector 9
VALUE-BASED GROWTH STRATEGY SUPPORTS OUR COMPELLING INVESTMENT CASE To be a leading integrated global chemical and energy company, proudly rooted in our South African heritage, delivering superior value to our stakeholders To create superior value for our customers, shareholders and other stakeholders. Through our talented people, we use selected technologies to safely, profitably and sustainably source, produce and market chemical and energy products LEVERAGE COMPETITIVE ADVANTAGE FROM OUR STRONG ASSET BASE TO ENSURE LONG-TERM SUSTAINABILITY AND VALUE 10
FINANCIAL AND OPERATIONAL PERFORMANCE Paul Victor
Financial and operational performance What you will hear today Largely strong set of results with continued focus on cash, cost and capital management Protect and strengthen the balance sheet through continued hedging beyond peak gearing, a robust funding plan and deleveraging to improve flexibility Ability to generate strong cash flows enables increased dividend payout ratio on Core HEPS and quality growth investments Outlook for FY18 and positioning for the medium-term 12
% change y-o-y US$/bbl $/mmbtu (gas price) US$1 = ZAR Macroeconomic environment Volatility in a growing global economy Stronger crude oil prices drives higher chemical prices $71 $60 $57 $48 Currency volatility remains as rand strengthens R13,99 R13,40 R13,74 R12,37 $2,95 $2,93 Brent Product price Henry Hub Average rate during period Closing rate at period end Base chemical prices vs Brent Product prices US$/unit Average % vs Chemical product prices trending up. Exchange rate remains volatile Solvents basket Polymers basket Brent 28% 19% (4%) Brent/bbl 56,74 19 Fuel products/bbl 71,23 18 Base Chemicals/ton 1 826 10 Performance Chemicals/ton 1 1 436 7 Export coal/ton 85 19 1. Comparative restated for the transfer of US ethylene to BC and kerosene sales in Alkylates business Prices reflect international commodities or baskets of commodities and are not necessarily Sasol specific Sources: RSA Department of Energy, ICIS-LOR, Reuters, Platts, International Energy Agency 13
Group profitability Strong core operating profit performance % Mining¹ 1 534 2 864 87 Exploration and Production International (EPI)² 204 (2 649) >100 Performance Chemicals (PC)³ 4 020 3 878 4 Base Chemicals (BC)³ 2 360 2 552 8 Core operating profit (%) by product 14 42 Energy⁴ 5 529 5 748 4 Group Functions 25 (607) >100 Operating profit (Rm) 13 672 11 786 14 Earnings per share (R) 14,21 11,29 21 44 Core operating profit (%) by geography Chemicals Energy Mining and other Headline earnings per share (R) 15,12 17,67 17 Core headline earnings per share (R) 17,41 18,22 5 14 11 Core HEPS up 5% to R18,22 Dividend per share (R) 4,80 5,00 4 Capital expenditure (Rbn) 30,2 27,7 8 3 72 SA North America Europe Rest of World 1. includes impact of strike action amounting to R1,0bn 2. includes R2,8bn (CAD281m) relating to the partial impairment of our Canadian shale gas assets 3. results have been restated for the transfer of the US ethylene business from PC to BC 4. includes R1,1bn (US$83m) relating to the scrapping of the US GTL assets 14
Operating profit Operating profit impacted by changing macro environment and once-off items Exchange rate¹ Crude oil and product prices¹ 13 672 (11%) 36% Macro environment TAILWINDS Higher crude oil and product prices Higher refining margins and resilient US$ margins in chemical businesses Hedging strategy protects and strengthens balance sheet Response Plan sustainable annual cash cost savings of R3,5bn achieved Once-off items and year-end adjustments (16%) 2 HEADWINDS Cost and other Sales volumes 2% (25%) 3 Costs and volumes Real cash fixed costs up 2% due largely to operational challenges Stronger exchange rate Higher remeasurement items 11 786 Rm 1. Excludes mark-to-market valuation on hedges 2. Includes remeasurement items (-25%) and prior year mining strike (+7%) 3. Includes cost inflation (-8%), growth costs (-7%) and production interruptions (-7%) 15
Cash fixed costs Impacted by growth-related costs and production interruptions FY18 cash fixed cost to track 6% inflation assumption US growth (LCCP & Gemini) New capital projects Once-off business establishment¹ Production interruptions² Inflation Exchange rate 22 628 (0,7%) (0,8%) (2,5%) 151 (2,3%) 190 (4,7%) 1. Unwind in RP savings due to the end of the Eskom PPA (R0,4bn), costs associated with our digital transformation (R0,2bn) and Khanyisa transaction (R0,1bn), partly offset by costs relating to the mining strike in the prior year (R0,4bn). 2. Includes increased maintenance costs (R0,3bn), higher labour costs (R0,1bn) and increased process materials (R0,1bn) 572 513 0,3% 25 053 Growth costs Once-off 1 074 75 Rm Study, growth and once-offs Costs and volumes Macro environment TAILWINDS Realised R3,5bn sustainable annual cash cost savings under Response Plan Sustainable annual BPEP savings of R5,4bn Prudent headcount management HEADWINDS End of the Eskom PPA on 31 March 2017 Production interruptions during the period Pre-investment costs associated with our digital transformation and Khanyisa B-BBEE transaction 16
Operating profit/(loss) Rm Rm Rm mm tons mm tons R/ton Mining and EPI OBUs Taking action to address safety and operational challenges 16,6 18,9 264 4,4 2,6 284 MINING Operating profit up 87% to R2,9bn due to strike in prior period Management interventions in place to address safety performance Commitment to deliver full supply to Synfuels Operations Production External purchases Unit cost/production ton Business Improvement Plan to improve productivity and reduce costs Impact of strike 988 1 187 (312) 47 EPI Operating profit of R115m excluding impairment Ramping up production to pre-strike levels (41) (3 202) Mozambique¹ Canada¹ Gabon¹ Canada impairment of ~R2,8bn (CAD281m) based on lower gas prices; disposal process progressing Mozambican operations positively impacted by higher sales prices and foreign currency gains Impact of impairment 1. Producing assets 17
kt % Rm % kt Rm Performance and Base Chemicals SBUs Resilient volumes with margins impacted by strong Rand 1 576 1 625 12 12 4 730 4 048 PERFORMANCE CHEMICALS Sales volumes up 3% 1, Eurasian operations production volumes up 2% Robust US$ margin and volume performance Sales volumes 1 Operating profit margin 1,2 Core operating profit 1 Excluding the impact of Hurricane Harvey and stronger exchange rate, operating profit is in line with the prior year FTWEP produced 21kt (50%) more hard wax compared to 1 775 1 754 12 13 2 740 2 891 BASE CHEMICALS Sales volumes decreased by 1% 1 due to SA port constraints and Hurricane Harvey Core operating profit up 6% to R2,9bn US$ commodity chemical basket prices up 10% FY18 normalised operating profit forecast of R3-5bn Sales volumes 1 Operating profit margin 1,2 Core operating profit 1 1. results have been restated for the transfer of the US ethylene business from PC to BC 2. operating profit margin have been normalised for the impact of a fire at our US Operations and Hurricane Harvey 18
% bscf % mmbbl mmbbl number Energy SBU Higher margins with focus on improving volumes 15,8 15,9 29,6 392 394 28,6 Synfuels refined products Liquid fuels sales Retail centres 95 99 29,6 27,6 18 21 ENERGY Liquid fuels sales volumes 3% lower Natref volumes down 21%, taking measurable actions to improve operational performance Softer SA market demand Synfuels Operations updated guidance of 7,7mt for FY18 Normalised operating profit up 23% to R7,3bn Petrol differential 16% higher, diesel differential 28% higher ORYX GTL achieved 99% utilisation exceeding market guidance ORYX utilisation Gas sales Operating profit margin¹ 1. The operating profit margin have been normalised for the scrapping of the US GTL asset 19
Rand billion Capital expenditure Optimised spend on LCCP with project on track 80 Key focus on execution of strategic projects in North America and Southern Africa Gemini HDPE and 17 th oxygen train successfully reached beneficial operation during period 60 40 60 59 37 37 54 32 37 38 Capital forecast impacted by optimised LCCP spend Forecast based on ~R13/US$ for FY18 and FY19 Capital estimates may change due to exchange rate volatility 20 8 14 US$ capex - $2,8bn (FY18) and $1,7bn (FY19) 10c change in exchange rate equals R280m Capital portfolio spend profile supports gearing targets 0 FY17 act FY18 est FY19 est Previous forecast Revised forecast Sustenance Growth Sustenance Growth LCCP LCCP 20
Near-term focus Strong balance sheet underpins superior returns BUSINESS IMPROVEMENT INITIATIVES STRENGTHENS FINANCIAL POSITION ENHANCES SHAREHOLDER VALUE Financial risk management Effective current hedging programme Continued hedging beyond peak gearing Improved cash flow stability Provides additional headroom on credit rating metrics Enables Inzalo debt refinancing with limited shareholder dilution, resulting in higher gearing into FY19 Operational efficiency Continuous improvement to drive business efficiency and effectiveness Asset review process to optimise portfolio Enhances profitability of foundation businesses Improves cash flow generation ROIC uplift of >2% by FY22 EBIT US$ growth >5% (real) through the cycle Capital structure Proactive liquidity management and optimal capital structure with focus on longer-term debt instruments Disciplined capital allocation focusing on quality growth projects Improved liquidity profile with new and amended debt instruments Investment grade credit rating metrics maintained Superior returns through increased dividends ROIC (US$) >12% p.a. FCF positive in FY19 and moving to >$6 per share in FY22 21
Outlook Business improvement initiatives support a positive FY18 outlook MINING EPI ENERGY Focus on safety and stability of operations Coal purchases at higher cost to supplement own production PPA gas production 114 118 bscf PSA drilling activities to continue No drilling activity in Canada Liquid fuels sales volumes approximately 59 million barrels ORYX GTL average utilisation >92% BASE CHEMICALS Sales volumes 1-3% higher than prior year US$ basket prices to lag oil prices PERFORMANCE CHEMICALS Sales volumes 2-3% higher than prior year US$ margins to remain resilient GROUP Normalised cash fixed costs to remain within inflation assumption of 6% Balance sheet gearing below 44% Dividend cover of 2,2 2,8x Core HEPS 22
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