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SOL
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SOL - Sasol Limited - Update From The Chief Financial Officer
Sasol Limited
(Incorporated in the Republic of South Africa)
(Registration number 1979/003231/06)
ISIN: ZAE000006896 US8038663006
Share codes: JSE - SOL NYSE - SSL
("Sasol" or "the Company")
UPDATE FROM THE CHIEF FINANCIAL OFFICER
Dear Sasol follower,
I am pleased to report that operating profit has further improved in the third
quarter of this financial year. We continue to benefit from our dedicated focus
on enhancing operational efficiency while maintaining strict cost discipline.
Higher realised product prices and improved production volumes have contributed
to healthy cash generation supporting the strength of our balance sheet. The
board of directors` (the Board) approval of a progressive dividend policy
demonstrates our confidence in the value that Sasol consistently delivers. Our
focus remains on improving total shareholder return and a progressive dividend
policy is complementary to the Group`s approach to delivering value for
shareholders over time. Our growth plans remain on track. Recent technology
developments in the cost-effective extraction of shale gas, and resulting lower
global gas prices, present a significant opportunity for the expansion of our
Gas-to-liquids (GTL) value proposition. As a result, we intend to actively
pursue growing our upstream gas reserves. Sasol is well positioned to deliver
solid financial and operational results for the full financial year.
Product prices continue to rise
Despite the recent volatility experienced in currency and commodity markets,
third quarter average dated Brent prices of US$77/bbl at an average exchange
rate of R7,50/US$1 supported a 3% increase in domestic fuel prices compared with
the first half of this financial year. Chemical product margins also improved
significantly with international polymer and solvent commodity prices increasing
between 12% and 14%, respectively, in dollar terms from first half levels.
The Group`s near-term expectation is that crude prices should bottom out at
around the US$70/bbl range. We believe that a crude price sustainably below
US$70/bbl is fundamentally undervalued and expect that OPEC may further cut
production at levels below this price floor. The impact of the crude spillage
in the Gulf of Mexico on oil prices has yet to be determined.
The continued restraint in production from OPEC and improving global economic
fundamentals should support future prices in a range of approximately US$75-
US$85/bbl. The greatest risk to our oil price forecast remains a protracted
global recession. Whilst all indications are that the global economy is showing
signs of improvement, macroeconomic concerns in some European countries
highlight the fragility of this economic recovery.
Risk aversion will continue to place pressure on the rand and we expect that the
currency will remain weaker until strong signals of economic recovery are
evident.
Sasol Synfuels (Synfuels) sustains operational performance
Operational momentum was maintained with production improvements across the
Group`s businesses throughout the third quarter.
Management actions taken at Synfuels in South Africa, which included staff up-
skilling and improving maintenance strategies have realised measurable
improvements in operational stability. Production for the third quarter of 2010
reached 1,8 million tons (Mt) despite the rain-related flooding and its impact
on production at the start of the quarter. Production for the first nine months
of the financial year therefore totalled 5,5Mt, an increase of 3% on the
corresponding period in 2009.
Synfuels remains on track to deliver single digit unit cash cost inflation for
FY2010 despite higher coal prices from Sasol Mining and increased electricity
tariffs from Eskom. Increased production volumes and effective cost management
have largely offset these cost increases. We are pleased that the National
Energy Regulator of South Africa has recently approved our Power Purchase
Agreement with Eskom. We expect that the benefits from this agreement will have
a significant effect in mitigating the impact of rising electricity costs on an
overall unit cash cost basis.
Synfuels has not re-entered into an oil hedge for any portion of its production
at this time.
Production records at Oryx GTL and Arya Sasol Polymers
Since the start of the calendar year, Oryx GTL has shown an exceptional
operating performance. As previously mentioned, the realistic operating rates
for a facility of this nature are typically 80%-90% of nameplate capacity. It
is, therefore, pleasing to note that actual production averaged 29 000 barrels
per day, or 90% of nameplate, during the third quarter of our financial year.
In mid-April 2010, Oryx GTL undertook a pre-scheduled statutory biennial
maintenance shutdown. The shutdown was concluded successfully, and the plant has
subsequently resumed production.
The Arya Sasol Polymers joint venture also achieved similar success. The plant
operated at 68% of design capacity during the third quarter compared with 55% in
the first half. This is a marked improvement in line with our plan to achieve a
full ramp-up of the facility by September 2010.
Strong performance from Chemical cluster
Our Olefins and Surfactants (O&S) business continues to show the benefits of the
turnaround project with sales volumes in the third quarter increasing by 7%
compared with the first half of the financial year. The improvements in
operating margins realised during the first half of the financial year were also
sustained during this period. With O&S leading the way, we expect an improved
contribution from our Chemical cluster for the full year.
Recent developments
The Board recently approved the construction of a R1,9 billion ethylene
purification unit at its Sasol Polymers plant in Sasolburg. The plant is
expected to go on stream in the second half of calendar 2013 and will be ramped
up to full capacity by calendar 2015 factoring in the phased implementation of
the Synfuels C2+ Recovery Project.
The unit will allow for additional ethylene production to ensure better
utilisation of the existing downstream polyethylene plants. Half of the
feedstock to the unit will be propane and ethane extracted from natural gas,
with the remainder being a combination of existing propane and flared gases
sourced from Synfuels. This project illustrates our renewed focus on unlocking
the full potential of our existing chemical assets.
Sasol was pleased by the recent announcement by the Department of Mineral
Resources (DMR) approving the conversion of Sasol Mining`s old order mining
rights in respect of both our Secunda complex, and the Mooikraal operation
situated near Sasolburg in the Free State. The approval is a significant
milestone for Sasol Mining and will greatly assist in implementing the Ixia Coal
Black Economic Empowerment transaction as part of Sasol`s transformation
objective.
Internationally, new technology to extract shale gas at much lower cost than in
the past has resulted in large reserves of natural shale gas being available in
the US and such finds are also expected in other parts of the world. The
prospect of additional shale gas reserves has lowered the price of gas relative
to oil. As Sasol is one of only two companies that can arbitrage between gas
and oil through its GTL technology, this development provides a substantial
opportunity to grow our GTL business. Accordingly we aim to actively grow our
gas reserves through further exploration and possible acquisitions.
Balance sheet strength allows for funding growth and improved returns to
shareholders
A solid balance sheet and strong cash flow generation, underpinned by improved
business conditions, have resulted in a review of our options to enhance returns
to shareholders. Taking into consideration the above mentioned factors as well
as current capital investment plans, the Group has decided to resume an approach
consistent with its long term track record of dividend growth as a key component
of adding shareholder value. As a result the Board has decided to adopt a
progressive dividend policy, as stated below:
It is Sasol`s intention to maintain and/or grow dividends over time in line with
the Group`s anticipated sustainable growth in earnings, barring significant
economic variables such as fluctuations in the oil price and exchange rates.
When deciding on dividends, the Board will also take into consideration several
factors including the prevailing circumstances of the Company, future investment
plans, financial performance and the trading and macro economic environments.
A consistent return of value to shareholders through increasing dividend
payments allows us to return cash to investors while remaining well positioned
to fund investment opportunities. The Group`s growth plans remain robust. The
large international expansion projects are on track with a possible investment
decision on China Coal-to-liquids (CTL) by the end of this calendar year, and
the expected completion of the feasibility study on Uzbekistan GTL within a
similar time frame.
Capital expenditure is expected to be maintained at R15 billion for the full
financial year. An update on capital expenditure guidance for the medium term
will be presented with the release of our year-end financial results on 13
September 2010.
Improved market conditions, higher Group production volumes and cost containment
to benefit operating profit for financial year 2010
The improved commodity market performance, anticipated higher Group production
volumes for the year and cost containment is expected to benefit operating
profit for financial year 2010.
Functional and business unit-related cost reduction initiatives are yielding
positive results. Sasol`s target for the financial year is a cash-fixed cost
reduction of approximately R1 billion and we remain on track to deliver these
savings.
Currencies remain volatile and given the sensitivity of our earnings to these,
particularly to the Rand/Dollar closing rate as of 30 June, as well as any
adjustments arising from our year-end closure process, a trading statement will
be issued once we have a reasonable degree of certainty on the results for
financial year 2010.
The forecast financial information appearing in this update has not been
reviewed or reported on by Sasol`s external auditors.
Best regards,
Christine Ramon
Staff changes in the Investor Relations department
As you are aware we recently appointed Nerina Bodasing as the Group head of
Investor Relations. Nerina previously headed up the Absa Groups` as well as Gold
Fields` investor relations functions. We wish her well in her endeavours at
Sasol.
Hubert Naude, who has been with the Investor Relations department for five years
has joined our New Energy business. We thank Hubert for his exceptional
contribution to the department and wish him well in his new role.
Nwabisa Piki will be joining the Sasol Investor Relations team in July. Nwabisa
has previously worked for the Absa Group and JP Morgan. We welcome her to Sasol.
24 June 2010
Johannesburg
Issued by sponsor: Deutsche Securities (SA) (Proprietary) Limited
Forward-looking statements:
In this document we make certain statements that are not historical facts and
relate to analyses and other information which are based on forecasts of future
results and estimates of amounts not yet determinable. These statements may
also relate to our future prospects, developments and business strategies.
Examples of such forward-looking statements include, but are not limited to,
statements regarding exchange rate fluctuations, volume growth, increases in
market share, total shareholder return and cost reductions. Words such as
"believe", "anticipate", "expect", "intend", "seek", "will", "plan", "could",
"may", "endeavour" and "project" and similar expressions are intended to
identify such forward-looking statements, but are not the exclusive means of
identifying such statements. By their very nature, forward-looking statements
involve inherent risks and uncertainties, both general and specific, and there
are risks that the predictions, forecasts, projections and other forward-looking
statements will not be achieved. If one or more of these risks materialise, or
should underlying assumptions prove incorrect, our actual results may differ
materially from those anticipated. You should understand that a number of
important factors could cause actual results to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements. These factors are discussed more fully in our most
recent annual report under the Securities Exchange Act of 1934 on Form 20-F
filed on 9 October 2009 and in other filings with the United States Securities
and Exchange Commission. The list of factors discussed therein is not
exhaustive; when relying on forward-looking statements to make investment
decisions, you should carefully consider both these factors and other
uncertainties and events. Forward-looking statements apply only as of the date
on which they are made, and we do not undertake any obligation to update or
revise any of them, whether as a result of new information, future events or
otherwise.
Date: 24/06/2010 08:00:05 Produced by the JSE SENS Department.
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