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Sasol - optimisation of financial statements
Since the implementation of our new operating model in 2014, we have optimised and integrated our operations along a single value chain and streamlined our processes and ways of working. To reflect the new operating model and bring greater focus and increased simplicity to how Sasol is structured and managed, we have overhauled our Annual Financial Statements (AFS) to better reflect the way the business is managed and improve shareholder accessibility and understanding of our financial results. We have also purposefully focused on the disclosure of material items to assist with clarity, as well as removing duplicate disclosures.
The new structure of the AFS will align with the Report of the Group Chief Financial Officer, and together will provide a full overview of the results, in the context of our business strategy, while enabling more effective analysis of the Group’s performance. This change in the AFS is also in line with global trends in financial reporting, which have been signaled over recent months by industry bodies and authorities to improve financial reporting in simpler, more accessible formats for shareholders.
The AFS has been re-organised and will be presented along the following focus areas:
- Earnings – focuses on earnings generated from our operations and taxation;
- Sources of Capital – funding our business through equity and debt;
- Capital allocation and utilisation – investments and effective capital management to fuel future growth;
- Provisions and reserves; and
- Other disclosures – financial risk management and mandatory disclosures required by the regulators.
Simultaneously, we are also implementing an Early Reporting project with the objective of releasing our 2017 financial results two weeks earlier into the market. The streamlined AFS will assist us in meeting the earlier reporting timelines and integrate the Analyst Book into one publication.
A template with the restructured AFS has been developed to assist shareholders and readers to familiarise themselves with the new format, prior to publication in September 2016. This unaudited template is available for download from our Investor Centre on the Company’s website at www.sasol.com/investor- centre/reporting/annual-financial-statements/new-template
Important to note is that the template is subject to change as we finalise the results for financial year 2016. The template includes previously disclosed financial information pertaining to financial years 2014 and 2015. The AFS for financial year 2016 will be available in this format when we release our results early in September 2016.
Queries and further questions regarding the new and optimised structure of the Annual Financial Statements shown in the template, can be directed to Sasol Investor Relations at investor.relations@sasol.com, or by calling +27 11 441 3113.
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Sasol - preliminary findings of LCCP
In March 2016, Sasol announced that it would be undertaking a detailed review of the Lake Charles Chemicals Project (LCCP), after deciding to pace the execution of the project to support the Company’s low oil price Response Plan. At that time, there were early indications that the overall end-of-job cost was under pressure, and since the project engineering was at an advanced stage, sufficient information was available to proceed with a detailed project review.
The LCCP consists of a world-scale 1.5 million ton per year ethane cracker, and six downstream chemical projects – two large polymers plants (low-density and linear low-density polyethylene) and an ethylene oxide/ethylene glycol plant, which together will consume around two thirds of the ethylene produced by the cracker; and three smaller, higher-value derivative plants, which will produce speciality alcohols, ethoxylates and other products. The project is under construction near Lake Charles, Louisiana in the USA, adjacent to Sasol’s current chemical operations.
A preliminary finding from the ongoing detailed LCCP review is that the expected total capital expenditure for the project could increase up to USD11 billion, including site infrastructure and utility improvements. This estimate includes a sufficient contingency to effectively manage the project to beneficial operation. While the detailed review is still in progress, current indications are that the estimated capital expenditure increase is mostly due to construction delays caused by higher-than-expected rainfall, higher labour costs, certain of the lump-sum bid contract prices being higher than originally estimated, as well as quantities of bulk materials being in excess of those included in the original estimate.
In addition, the slower rate of capital spend until June 2018, due to Sasol’s low oil price Response Plan, has resulted in an extended project schedule and contributed to further project cost increases, which have been partially offset by productivity benefits due to improved phasing of engineering and construction activities. As of 30 April 2016, the capital expenditure to date on LCCP is US$4,5 billion, and the overall project completion has progressed beyond 40%. It is, however, important to emphasise that no material or unexpected scope changes to the project have taken place. Overall construction on the project continues on all fronts, with most engineering activities nearing completion and procurement well advanced.
As the review progresses and additional information becomes available, management is setting firm targets and objectives for the project team in order to minimise the capital expenditure and optimise the overall project schedule. It is, however, expected that the ethane cracker will achieve beneficial operation in the second half of calendar year 2018, which will enable around 80% of the total output from LCCP to reach beneficial operation later in 2018 and early 2019. The remaining volumes from the other derivative units will reach beneficial operation by the second half of 2019.
The expected returns for the project have reduced due to changes in long-term price assumptions and the higher capital estimates, and are now expected to be around Sasol’s weighted average cost of capital, compared to returns approximating hurdle rate at the time of Final Investment Decision in October 2014. The increase in the estimated LCCP capital cost and extended schedule will reduce the expected project returns by approximately the same amount as the Company’s lower long- term price assumptions.
Although the capital expenditure for LCCP is expected to increase, Sasol does not expect this to result in the Company exceeding its self-imposed gearing targets. The Company is continuing with its previously announced low oil price Response Plan, and will manage its balance sheet to incorporate the current estimated capital expenditure. The funding strategy has not changed as a result of the higher capital expenditure estimates. The project will continue to be funded from existing facilities and ongoing group cash flow. The detailed LCCP review is expected to be completed during the third quarter of 2016, and further details will be communicated together with Sasol’s annual results announcement on 12 September 2016.
Sasol will be hosting a conference call at 14:00 South African time (8:00 Eastern time) on Tuesday, 7 June 2016 to discuss this announcement, which will be webcast via Sasol’s website www.sasol.com.
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Sasol - trading statement
Sasol´s headline earnings per share (HEPS) for the financial year ending 30 June 2016 are expected to decrease by between 10% and 30% (approximating R4.98 to R14.93 per share) compared to the 2015 financial year (comparable period) HEPS of R49.76. Earnings per share (EPS) for the same period are expected to decrease by between 53% and 73% (approximating R25.82 to R35.56 per share) from the comparable period EPS of R48.71.
The volatile macroeconomic environment, in particular lower crude oil prices, has had a significant impact on earnings. EPS was further impacted by the R7.4 billion (CAD665 million) impairment of our share in the Montney shale gas asset recognised in December 2015. Due to a further decline of natural gas prices in North America, we will recognise an additional impairment of approximately R4.1 billion (CAD340 million), resulting in a total impairment of R11.5 billion. This impairment contributed to a 39% decrease of EPS.
Sasol expects production volumes and cost reductions to be better than their previous guidance. Further details on their operational and financial performance will be provided in a trading update in early August 2016. The current volatile market conditions may however further impact Sasol's results, particularly changes in oil, product prices and movements in the rand/dollar exchange rate.
Sasol's financial results for the financial year ending 30 June 2016 will be announced on Monday, 12 September 2016.
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