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Sasol -- CFO's newsletter
Sasol has published a newsletter from its CFO - Christine Ramon - aimed at the investment community, on its website at: http://www.sasol.com/sasol_internet/frontend/navigation.jsp?navid=5600002&rootid =3
The newsletter includes a brief project update to the market ahead of the interim results release on 9 March 2009.
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Sasol anticipates higher EPS and HEPS
Sasol's attributable earnings per share and headline earnings per share for the six months ended 31 December 2008 are estimated to increase by between 55% and 65% over the comparable previous reporting period. The expected increase in earnings is mainly due to the weakening of the rand against the US dollar and an increase in crude oil and product prices compared to the corresponding six months of the previous reporting period. Overall production volumes were also higher as a result of additional capacity and improved operations.
Revised outlook for financial year ending 30 June 2009
Market conditions have deteriorated in recent months due to the global economic downturn, with lower than expected crude oil and product prices as well as lower product demand. These impacts are partially mitigated by the weakening of the rand against the US dollar and the positive impact of the synfuels hedge to end May 2009. Sasol's outlook statement given at the time of the announcement of our annual results on 8 September 2008 of 'robust growth forecast for 2009' is thus revised to 'a moderate reduction in earnings forecast for 2009 compared to the prior year'.
Several assumptions have been made in estimating the expected earnings for the full financial year 2009. These assumptions take cognisance of the volatile market conditions and will be regularly reviewed over the remainder of the financial year. This may result in a change in the estimated earnings. Sasol announced on 19 January 2009 that it is systematically undertaking comprehensive group-wide reviews of its compliance with competition law. This trading statement excludes any provision for fines or penalties that may be imposed by the South African Competition Commission.
Maintaining a strong cash position
Sasol has a positive cash position and a strong balance sheet, and has entered a cash conservation mode given the global economic crisis. Sasol continues to generate considerable cash flows, which keep the group well-positioned in the current economic climate as well as meeting all existing debt service requirements.
Sasol is responding to the global economic crisis by continuing to manage our balance sheet prudently and have lowered targeted gearing (net debt to equity ratio) from the previous range of 30% - 50% to 20% - 40%. Our focus remains on sustainable cost containment and improving business operational efficiencies.
The overarching objective of Sasol's growth plans remains unchanged: to ensure prudent management of resources while pursuing those projects and programmes that are in the best interests of shareholders and other valued stakeholders. Therefore Sasol is reviewing and reprioritising planned capital expenditure of R16 billion for 2009 (R70 billion for the three years 2009-2011) in the light of the changed market conditions, including assessing the opportunities that the current environment presents.
Project update
In the near future Sasol will post on its website (www.sasol.com) an update of its South African and international projects. Sasol's financial results for the six months ended 31 December 2008 will be announced on Monday, 9 March 2009.
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Confusion over Sasol's true value
Analysts have conflicting views about where Sasol's share price should be, with opinions and forecasts ranging from R220.00 to R370.00 a share. However, investors should not forget about Sasol's long-term prospects. According to Finweek, investors are very excited about Sasol's technology, especially its leading position in gas-to-liquid ("GTL") fuels, even though its GTL projects are yet to make a large contribution to profits. This could change in the future. An immediate negative though, is the EUR318.2 million fine that the European Commission on Competition placed on the company, which Sasol is intending to appeal.
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Sasol -- competition law compliance update
Sasol announced that as part of the group's ongoing legal compliance programme, Sasol Ltd's chief executive, Pat Davies, and his management team initiated a competition law compliance review of all Sasol businesses in July 2008. In addition to this compliance review, the Sasol board of directors, on recommendation of management, commissioned a review of the adequacy of competition law compliance processes managed and co-ordinated across the Sasol Group. Sasol has retained external counsel to assist in this connection. Sasol will, in the course of conducting the competition law compliance reviews, adopt appropriate remedial steps and make disclosures on the material findings as and when it is appropriate. It is currently envisaged that the review process will be completed during the first half of 2009. At this stage, Sasol is in a position to disclose findings of the competition law review process in respect of Sasol Nitro, Sasol Gas and Sasol Oil.
Sasol Nitro
Additional information has been revealed by the review process which is relevant to previously disclosed competition law legal proceedings in respect of the Nutri-Flo complaints and Phosphoric Acid investigation. On the basis of available information and legal advice at the time of previous disclosures of these matters it was indicated that a finding of unlawful conduct under the Competition Act of South Africa in each of these matters was remote. Additional information uncovered in the review process and an ongoing assessment of the merits of these matters now indicate that a finding of unlawful conduct under the Competition Act is more probable in the Phosphoric Acid investigation and in respect of one of the complaints in the Nutri-Flo matter referred by the Competition Commission to the Competition Tribunal. Sasol has commenced exploratory discussions with the Competition Commission. It is premature to determine the possible consequences and financial impact of any finding of unlawful conduct at this stage.
Sasol Gas
The competition law compliance review referred to above, has also revealed two competition law contraventions in Sasol Gas. The first contravention relates to the structure of a piped gas marketing BEE joint venture which Sasol established and in which Sasol has a 49% interest. In support of the BEE joint venture Sasol agreed to certain restrictive provisions in the agreements relating to the venture. In addition Sasol provided marketing and administrative related services and assistance to this venture. These agreements were based on legal advice obtained at the time as well as an assumption that the venture could be treated as a partner rather than a competitor of Sasol Gas. Closer scrutiny and additional legal advice obtained as part of the competition law compliance review indicated that the assumption was not valid and that the assistance and services provided to the venture constituted a contravention of the South African Competition Act. The second contravention relates to a restrictive clause in a supply agreement with a customer for the benefit of the customer. Sasol agreed to the restrictive clause to support the privatisation of the customer. Sasol is only to a limited extent a potential competitor of this customer. Each of these contraventions was brought to the attention of the Competition Commission once they were identified. Sasol is co-operating with the Competition Commission and has been granted conditional corporate leniency by the Competition Commission in both these matters. Management does not believe that these contraventions by Sasol Gas will have a material adverse impact on its business, operating results and financial condition.
Sasol Oil
Following a competition law compliance review, Sasol Oil was advised by its competition law advisors that certain identified conduct may be construed as contravening certain provisions of the South African Competition Act. Upon the identification of the potential concerns, Sasol Oil submitted leniency applications to the Competition Commission and is co-operating with the Commission in this regard.
The Competition Commission announced that it has initiated investigations into the South African piped gas and petroleum industries as a result of Sasol's leniency applications. Sasol is co-operating fully with the Commission in these investigations.
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