Financial performance in context

• Headline earnings per share (HEPS) up 12% to R30,72
• Core headline earnings1 per share (CHEPS) up 5% to R38,13
• Earnings Before Interest and Tax (EBIT) down 45% due to higher remeasurement items
• Cash generated by operating activities up 20%
• Normalised cash fixed cost – below our 6% inflation target

Resilient operational performance

• Production:
  • Secunda Synfuels Operations achieving annualised run rate of 7,8 mt post the full shutdown
  • Natref achieved a production run rate of 637m³/h, highest in last 8 years
  • High Density Polyethylene plant has produced at upper end of design capacity
  • ORYX GTL utilisation of 81% due to unplanned maintenance shutdowns
  • Mining productivity up 3%
• Sales:
  • Liquid fuel sales volumes up 2%, resulting from a strong Natref performance
  • Base Chemicals sales volumes up 4%, offset by softer commodity chemical prices
  • Performance Chemicals sales volumes down 3% impacted by 1st half 2019 external
  • supply constraints and 2nd half 2019 softer macroenvironment in Europe and Asia

Board review concluded - No earnings, financial position or cash flow restatements

Focused balance sheet management

• Gearing elevated at 56,3%
• Net debt: Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) 2,6 times
• Bank Net debt: EBITDA 2,2 – 2,4 times – below USD bank covenant of 3 times
• Final FY19 dividend passed to protect and strengthen  our balance sheet
• Working capital of 15% of revenue – benefitting from focused management initiatives
• Advancing Lake Charles Chemicals Project (LCCP)
• 98% overall project completion, with Recordable Case Rate (RCR) of 0,11
• Cracker reached beneficial operation in August 2019
• Linear Low Density Polyethylene and Ethylene Oxide/Ethylene Glycol units ramping up to targeted levels
• Cost tracking estimate of US$12,6 – US$12,9 billion

Progressing sustainability

• Safety RCR, improved to 0,26; regrettably three fatalities 
• Achieved Level 4 Broad-Based Black Economic Empowerment status
• R19 billion in procurement spend with SA Black-owned businesses
• Developing our Greenhouse Gas emission reduction roadmap
• Sasol Oil tax dispute settled

Earnings performance
Our foundation business delivered resilient results with a mostly strong volume and normalised cash fixed cost performance against the backdrop of a challenging macroeconomic environment. Our business was impacted by market and geopolitical risk, including subdued growth in global gross domestic product (GDP).

Our gross margin percentage decreased 2% compared to the prior year driven by a softer macro environment negatively impacting supply-demand dynamics especially in our chemicals business. We view this as temporary as the market is expected to recover over the short-to-medium term. Our Energy business benefitted from higher crude oil prices and higher diesel differentials. These benefits were partly offset by weaker petrol differentials driven by negative supply-demand fundamentals.

Cash fixed cost, excluding capital growth and the impact of exchange rates, increased by 5,7%, relative to our internal 6% inflation target. Our cost management processes remain robust while we continue to evaluate further opportunities to embed our continuous improvement efforts. The sustained competitiveness of our business remains top of mind.

Adjusted EBITDA2 decreased 9% compared to the prior year due to lower chemical product prices and higher LCCP operating cost. As the LCCP progresses through the sequential beneficial operation schedule, the costs associated with relevant units are expensed while the gross margin contribution follows the ramp-up profile and inventory build. We expect a closer match between margin and costs for the LCCP to be achieved from 2020.

EBIT decreased 45% to R9,7 billion, largely due to significant remeasurement items of R18,6 billion (US$1,3 billion) recorded in the current year resulting from softer chemical prices as well as the higher than anticipated capital spend on the LCCP.

CHEPS increased 5% to R38,13 compared to the prior year. HEPS increased 12% to R30,72 per share compared to the prior year. The increase in core headline earnings continues to reflect our cash flow generating ability from our foundation businesses despite weaker chemicals pricing.

1    Core headline earnings per share (CHEPS) adjusts the standard JSE definition of headline earnings for the impact of translation gains arising on the translation of monetary assets and liabilities to functional currency, market-to-market valuation of hedges, Sasol Khanyisa equity-settled share-based payments recorded in the income statement, LCCP losses during ramp-up and provision for significant tax litigation matters. This constitutes pro forma financial information and should be read in conjunction with the full announcement.
2    Adjusted EBITDA is calculated by adjusting EBIT for depreciation, amortisation, share-based payments, remeasurement items, movement in rehabilitation provisions due to discount rate changes, unrealised translation gains and losses, and unrealised gains and losses on hedging activities. This constitutes pro forma financial information and should be read in conjunction with the full announcement.

Balance sheet management
Cash generated by operating activities increased to R51 billion compared to R43 billion in the prior year. This was largely attributable to favourable Brent crude oil prices and the exchange rate, together with our strong working capital performance. These benefits were offset by softer chemical prices and losses attributable to the LCCP incurring costs with limited corresponding returns while in ramp-up phase.

Our net cash on hand position decreased from R17,0 billion to R15,8 billion as at 30 June 2019.

Actual capital expenditure, including accruals, amounted to R56 billion. This includes R30 billion (US$2,1 billion) relating to the LCCP. The higher LCCP capital cash flows and significant impairments recorded increased our gearing to 56,3%, which is above our previous market guidance of 44 – 49%.

We continue to actively manage the balance sheet with the objective of maintaining a robust liquidity position and a balanced debt maturity profile. Active balance sheet management will remain a key ongoing focus during this peak gearing phase.

During 2019, we refinanced the US$4 billion LCCP asset-based facility in two phases, initially by the issue of US$2,25 billion of US dollar-denominated bonds and thereafter by a US$1,8 billion 5-year bank loan financing (with a net debt: EBITDA covenant of 3,0 times).

The US dollar bond issue was Sasol’s first such issuance since the inaugural US$1 billion 10-year bond issued in 2012. The issuance comprised a US$1,5 billion 5,5-year bond and a US$0,75 billion 10-year bond. This refinancing enabled Sasol to optimise our mix of funding instruments between bank loans and bond market, while at the same time extending the maturity of the debt profile from 2021 to as far out as 2028. An additional benefit of refinancing away from asset-based security was that S&P re-rated the 2012 bond back to the same investment grade level as Sasol Limited. The US$1,8 billion bank loan was closed in June 2019.

As part of the refinancing, we agreed with our lenders to amend the net debt: EBITDA covenant from 2,5 times to 3,0 times under the US$3,9 billion Revolving Credit Facility entered into in 2017. Our net debt: EBITDA at 30 June 2019 was 2,6 times, with the banks definition of net debt: EBITDA expected to range between 2,2 and 2,4 times, which remains well below the covenant.

In addition, in the domestic South African market, we have both bank loan facilities, and the R8 billion Domestic Medium Term Note Programme (DMTN) which was established in 2017. In August 2019 Sasol issued our inaugural paper to the value of R2,2 billion in the local debt market under the DMTN programme.

Another key element of financial market risk management is our hedging programme. We continue to make good progress with hedging our currency and ethane exposure. For further details of our open hedge positions we refer you to our Analyst Book (www.sasol.com). We will continue to hedge our net cash exposures for our balance sheet for 2020 and 2021 and will reduce our cover ratios once we are satisfied with the balance sheet’s gearing levels.

In line with our capital allocation framework, we continue to hold a long-term commitment to maintain our investment grade credit ratings. 

Dividend
After careful consideration of our current leverage and the volatility in the macroeconomic environment, the Board has made the decision to pass the final dividend to protect and strengthen our balance sheet. We continue to ensure that we deliver the key elements of our strategy, particularly the final completion of the LCCP. The Board may further consider the passing of the 2020 interim dividend based on the health of the balance sheet credit metrics at that stage.
 
Board activities
In May 2019, the Board commissioned an independent review into the circumstances that may have delayed the prompt identification and reporting of the LCCP cost and schedule overruns. The review has now been concluded. Management has determined that, as of 30 June 2019, the Company’s internal control over financial reporting was ineffective due to the existence of a material weakness with respect to the capital cost estimation process implemented in connection with the LCCP, which resulted from the aggregation of a series of individual control and project-related control environment deficiencies, the remediation of which had not been fully implemented and validated as of year-end.

There were no restatements to earnings, financial position or cash flow. Please refer to the Company’s announcement on 28 October 2019 for more information on the conclusions and remediation.