Sasol’s management will spend the next two years building value into its international chemical business, Lake Charles, ahead of the possible listing or co-investing, among other possible options the company will be exploring.
CEO Simon Baloyi told Business Day that the company had not made a firm decision regarding the Lake Charles chemical business, adding that Sasol is already dually listed on the New York Stock Exchange and JSE.
“When the time comes, we will consider separating the Lake Charles business,” Baloyi said. “But we have to turn it around first. We’re busy with a reset and optimisation ... in 12-24 months we’ll know whether listing the business makes sense.”
Located in Westlake, Louisiana, near the city of Lake Charles, the chemical plant is a petrochemical facility that produces a range of chemicals, including ethylene, propylene, and polythene.
Ethylene is used in plastics, while propylene is used in automotive parts. Polythene is commonly used in packaging materials, construction pipes and consumer goods such as toys and household items.
Sasol invested about $11bn in the chemical project, which was completed in 2019. The project was one of the largest foreign direct investments in the US at the time. The plant uses natural gas as its primary feedstock.
Despite its strategic location and investment, the plant has faced challenges. The project was marred by cost overruns and it has not yet contributed substantially to Sasol’s financial resources, contributing to the company’s debt overhang.
The facility’s performance has been affected by operational and financial challenges, including high construction costs and the need for turnaround efforts to improve profitability. In response to these challenges, Sasol has been exploring options to restructure the business, including a potential separation of the asset from the rest of the company.
“Our priority now is to turn around the business, make it profitable and demonstrate its value to potential partners or investors. The business has been unprofitable for four years, so we need to show improvement.
“Once the business is turned around and performing well, we'll have several options: we can list it independently, partner with another company, or attract investors to grow the business before listing it,” Baloyi said on Monday after the company released its midyear results to end-December.
“Our priority now is to turn the business around, make it profitable and demonstrate its value to potential partners or investors. Ithas been unprofitable for four years, so we need to show improvement.”
The energy and chemicals company reported lower earnings at the halfway stage of the financial year, in a challenging macroeconomic and operating environment.
Revenue for the six months to end-December fell 10% to R122.1bn, mainly due to a 13% decline in the average rand per barrel Brent crude oil price and a fall in refining margins and fuel price differentials. The revenue drop was also attributed to a 5% decrease in sales volumes, resulting from lower production and weaker demand, Sasol said.
Adjusted earnings before interest, tax, depreciation and amortisation (ebitda) fell 15% to R23.9bn, largely due to the lower revenue. However, the company’s international chemicals segment noted an increase in its relative contribution, from 6% to 13%.
Ebit fell 40% to R9.5bn. That slump was due to non-cash adjustments, including impairments of the Secunda and Sasolburg liquid fuels refineries, which remain fully impaired. Headline earnings per share (HEPS) fell 31% to R14.13.
Cash generated by operating activities increased 20% to R17.6bn, primarily due to changes in working capital. However, capital expenditure was slightly lower at R15bn.
Sasol’s management said the company’s focus was on cost containment, cash conservation and business optimisation initiatives.
“We have implemented stringent cost management and efficient capital expenditure to mitigate the impact of the challenging macroeconomic and operating environment,” Baloyi said.
Sasol’s net debt (excluding leases) increased to R81.8bn, mainly due to the negative free cash flow. Its interim financial results come amid a backdrop of increasing global uncertainty and volatility.
Sasol said the macroeconomic and operating environments were expected to remain challenging.
The board did not declare an interim dividend, citing the company’s free cash flow deficit and net debt levels exceeding the trigger point, it said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.