Sasol delivered a good set of results for the six months ended 31 December 2020. Earnings increased by more than 100% to R15,3 billion from R4,5 billion in the prior period.
Despite a 23% decrease in the rand/barrel oil price, adjusted EBITDA decreased by only 6%. This achievement is as a result of a strong cash cost, working capital and capital expenditure performance in response to the challenging environment.
Earnings were positively impacted by the following non-cash adjustments:
- Gains of R4,6 billion on the translation of monetary assets and liabilities due to a 15% strengthening of the closing rand/US dollar exchange rate compared to June 2020;
- Gains of R5,0 billion on the valuation of financial instruments and derivative contracts; and
- R3,3 billion gain on the realisation of the foreign currency translation reserve (FCTR), mainly on the divestment of 50% interest in the US LCCP Base Chemicals business.
- Working capital ratio of 14,9% compared to 14,6% for the prior period. Investment in working capital was R27,3 billion;
- Capital expenditure of R7,5 billion;
- Normalised cash fixed reduced by 10% (R3,2 billion) compared to the prior period;
- Profit before interest and tax (EBIT) of R21,7 billion compared to R9,9 billion in the prior period;
- Adjusted EBITDA declined by 6% from R19,8 billion in the prior period to R18,6 billion;
- Basic earnings per share (EPS) increased to R23,41 per share compared to R6,56 in prior period; and
- Headline earnings per share (HEPS) increased by more than 100% to R19,16 per share compared to the prior period.
A decision was made not to pursue a rights issue given the current macroeconomic outlook, and the significant progress made on the company's response plan initiatives.
The balance sheet deleveraging pathway will continue to be prioritised to ensure that we operate within our financial covenants and maintain adequate liquidity headroom, whilst delivering the Sasol 2.0 transformation programme.
Balance sheet management
Cash generated by operating activities decreased by 40% to R11,7 billion compared to the prior period and our net cash on hand decreased from R34,1 billion as at 30 June 2020 to R27,6 billion.
Although cash flows were impacted by low crude oil prices, softer chemical prices, plant downtime and the impact of COVID-19, the company's cash conservation initiative and asset divestment programme enabled them to repay approximately R28 billion (US$2 billion) of debt. In addition, Sasol repaid ZAR banking facilities of approximately R4 billion.
Actual capital expenditure amounted to R7,5 billion compared to R21,4 billion during the first six months of 2020. The free cash flow for the period was R0,4 billion in a low US$43,62/barrel average oil price environment.
To create flexibility in Sasol’s balance sheet during this peak gearing period, their lenders agreed to lift the company's covenant from 3,0 times to 4,0 times of Net debt: EBITDA (bank definition) when measured at 31 December 2020. This provided additional flexibility, subject to conditions, which were consistent with the company's capital allocation framework (i.e. prioritising debt reduction through commitments to suspend dividend payments and acquisitions while their leverage is above 3,0 times Net debt: EBITDA).
Net debt: EBITDA ratio at 31 December 2020 was 2,6 times (bank definition), significantly below the threshold level.
At 31 December 2020, total debt was R126,3 billion compared to R189,7 billion as at 30 June 2020. During the period, Sasol utilised proceeds from their asset divestments to repay the US Dollar syndicated loan, as well as a portion of the company's revolving credit facility, reducing their US dollar denominated debt by almost R28 billion (US$2 billion) to R121 billion (US$8,2 billion).
Through their comprehensive response plan and planned asset divestments, Sasol intend to further reduce their net debt to achieve a Net debt: EBITDA ratio of less than 2,0 times and gearing of 30% by 2023.
Gearing decreased from 114,5% at 30 June 2020 to 76% at 31 December 2020 mainly due to repayment of US dollar debt (20%) and a stronger closing Rand/US dollar exchange rate (7%).
As at 31 December 2020, Sasol's liquidity headroom was in excess of R53 billion (US$3,6 billion) well above the targeted liquidity of at least US$1 billion, with available rand and US dollar-based funds improving as the company advanced their focused management actions. Sasol continue to assess their mix of funding instruments to ensure that the company have funding from a range of sources and a balanced debt maturity profile.
Sasol have no significant debt maturities before November 2021 when the R2,2 billion (US$150 million) term loan becomes due. In terms of the covenant waivers with the lenders that existed at 30 June 2020, Sasol remain obliged to use certain planned disposal proceeds to settle debt. As a result, R14,3 billion (US$975 million) has being classified as short-term debt.
Sasol continue to actively manage the balance sheet with the objective of maintaining a healthy liquidity position and a balanced debt maturity profile.
KeyFacts Energy: Sasol South Africa country profile