Sasol expects to be a highly cash generative and competitive business that will deliver attractive returns to shareholders in a low oil price environment within five years, the petrochemicals said on Wednesday.
Sasol briefed investors in the highly anticipated update in which it outlined how it would deliver a sustainable company through its “game-changer” transformation programme dubbed “Sasol 2.0”. The update came on the back of a terrible year in which it was battered by concerns over its debt, delays at its disastrous Lake Charles Chemicals Project and pressure from environmental activists over its emissions record.
By the end of its 2025 financial year, the company expects it will not only be profitable at an oil price of $45 per barrel but will also be well positioned to become a leader in Southern Africa’s energy transition.
In this time, Sasol aims to reduce its cash fixed cost by as much as 20% to between R8bn and R10bn and improve its gross margin by up to 10% to between R6bn to R8bn. Capital expenditure will be 30% lower at between R20bn and R25bn a year while working capital will be 14% of revenue, an improvement of 1 percentage point from 2019.
The immediate focus is to find a pathway to bring its break even price for every barrel of oil it produces down to between $30 and $35 dollars a barrel. Sasol is working to achieve the majority of its targets by the end of financial year 2023.
“We have a bright future ahead for our people and planet while delivering profit,” CEO Fleetwood Grobler said. “We are fully aware of what [our] challenges are and we are working constructively now toward viable solutions and, when implemented, this will give us a more competitive and more sustainable business.”
The group has also faced increasing pressure to reduce its enormous carbon footprint, primarily because of its Synfuels plant in Secunda where it produces oil from coal. It is SA's biggest emitter after Eskom.
Sasol CFO Paul Victor said labour costs formed a large part of the reduction in cash fixed costs but was unable to say yet how many jobs would be affected.
Marius Brand, executive vice-president responsible for Sasol 2.0, said that under the new operating model Sasol’s management layer was already 25% leaner.
By introducing more gas into its operations, Grobler said Sasol will not only reduce its own carbon footprint but it can also lead the energy transition in Southern Africa and accelerate sustainability goals. In the longer term, the company hopes to play a key role in the green hydrogen economy.
The company has achieved $1bn in savings in the 2020 financial year and is on track to save $1bn more in the current one, and has also made progress on asset sales. Notably it recently sold 50% of its base chemicals at Lake Charles for $2bn and on Wednesday said it will realise a total $3.5bn from divestments by the end of the current financial year.
It hopes the new strategy will help to decrease the size of a rights issue, if not avoid it entirely.
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