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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 since our previous communication, our businesses
have continued to perform well operationally. The Synfuels plant was safely
and successfully commissioned after its largest ever planned maintenance
outage. Oryx continues to sustain good operating rates and increased first
quarter sales volumes from the chemicals businesses have contributed
approximately one third of the group`s operating profit.
Product prices have shown an overall year-on-year improvement, largely
mitigating the impact of the stronger rand. The sustained strength of the
currency, however, remains a key challenge to the group. We are therefore
focused on ensuring that our businesses remain robust with healthy margins by
continuing with our efforts on the factors within our control, such as cost
management and operational efficiency. Successful delivery of our offshore
projects also provides a solid underpin to earnings diversification.
Our growth strategy has been refocused towards accelerating the Gas-to-Liquids
(GTL) value proposition and our efforts to increase natural gas reserves
through exploration and/or acquisition opportunities remain on track.
Higher product prices largely negate the impact of the stronger rand
The beginning of the current financial year was characterised by the sustained
strength of the rand against the US dollar. The easing of monetary policy by
the G4 economies created significant capital flows into emerging markets in
search of yield and growth which, in our view, have contributed to the overall
strengthening of these currencies. The global environment has created strong
tailwinds for the rand. Our expectation is that the rand is likely to remain
strong into the medium term.
Product prices, however, remained resilient, with higher oil prices and
refining margins largely offsetting the negative impact of the strong rand.
Average year-to-date domestic fuel prices are up 1% from the average price in
the previous financial year.
In the chemical markets, international polymer prices have not had the typical
third quarter calendar year increase associated with restocking of packaging
and agricultural film. US dollar prices for the first quarter of this
financial year were flat compared to the average price received for the
previous financial year.
Year-to-date solvents commodity prices, however, showed a steady increase of
almost 20% in dollar terms, compared to the average price for the prior
financial year.
Modest increase in group turnover
Group turnover for the first quarter of the 2011 financial year was slightly
higher than the quarterly average achieved during the second half of the 2010
financial year. This is largely attributed to higher product prices and
production improvements, particularly from the group`s offshore businesses.
Successful delivery on our offshore projects has improved the geographic
earnings diversification, enhancing the robustness of the group.
Our ongoing focus on controllable factors - cost containment, the improvement
of operational and marketing efficiencies and optimising capital project
returns - will support our efforts to sustain profitability and deliver
sustainable long-term returns to our shareholders.
Energy efficiency initiatives drive reduction in costs
In 2006, a decision was taken by management to increase our electricity
generation capacity in South Africa using natural gas as a feedstock. This was
undertaken in anticipation of a significant rise in electricity prices and the
increased risk of supply interruptions. Two 100 mega watt (MW) open cycle gas
turbines were successfully commissioned in June this year.
The turbines have been in full operation since mid-July with a combined
production output of between 200MW and 220MW. This allows us to produce
approximately 50% of our current electricity requirements. The new Power
Purchase Agreement with Eskom, associated with this additional capacity
enables Synfuels to significantly lower its net external electricity cost.
As a further enhancement, we are currently installing two heat recovery steam
generators to produce super-heated steam from hot exhaust gases. The steam
will be used in Sasol Synfuels` existing steam turbine generators to generate
an additional 80MW of electricity. This additional capacity is expected to be
commissioned in the middle of the 2011 calendar year and is an energy
efficiency optimisation that will not require additional feedstock. In the
longer term, we are also investigating initiatives to replace natural gas
feedstock with waste gas that is currently flared.
The group aims to undertake a similar electricity generation project at the
Sasolburg facility which will generate 140MW of electricity using natural gas
from Mozambique. These projects clearly indicate how rising energy costs have
created opportunities for improved energy efficiency.
Progress on functional excellence
We continue to pursue our cost management efforts through our Functional
Excellence programme. This initiative aims to reduce costs in support
functions by simplifying, standardising and sharing business processes.
Cost savings of more than R600 million arising out of the programme were
achieved in the 2010 financial year, and we anticipate further savings in the
coming financial year.
Investing in plant integrity and reliability at Secunda
The Synfuels operation commenced the largest maintenance outage in its 60-year
history on Friday 27, August 2010. This was in order to ensure the ongoing
integrity and long-term stability of the plant. This resulted in a statutory
shut down of half of the plant in accordance with a planned maintenance
schedule for a period of three weeks. With approximately 14 500 additional
workers employed and over 150 000 activities completed, the start-up was
delayed by a few days. We are, however, satisfied that the plant has been
safely and successfully re-commissioned.
Taking into account the impact of the three-week outage, the total production
of 1,7 million tons (Mt) is in line with our expectations for the first
quarter of 2011. However, the delay in re-commissioning does place our 7,3 Mt
production target for the financial year at risk. With planned plant
availability unconstrained for the remainder of the year, the Synfuels team
considers 7,2 Mt to be a more realistic full year target.
Oryx GTL reports healthy profits and production volumes
Oryx GTL sustained operating rates at 83% of nameplate capacity during the
first quarter of the 2011 financial year, with actual production averaging 27
000 barrels per day. This is in line with the expected 80-90% operating rate
range for this facility. This achievement augments the positive performance
achieved since the beginning of the financial year.
Unit costs in financial year 2011 are expected to drop from the 2010 level due
to increased production volumes and despite a gas price increase effective 1
January 2011. With higher production and lower unit costs, we expect a
healthy contribution to group operating profit from Oryx GTL in the current
financial year.
Arya maximising polyethylene production
The ethane cracker at our Arya Sasol Polymer Company joint venture is
constrained at 80% of nameplate capacity. Further ramp-up is inhibited by a
design limitation in the demethaniser column associated with the cracker. We
aim to rectify this constraint in the medium term and the detailed schedule
for this activity is currently being planned. In the interim, we will operate
close to the current capacity until this modification is implemented.
Our downstream low-density and high-density polyethylene plants are, however,
unconstrained and have ramped-up according to plan. We are therefore well
placed to maximise production of polyethylene and to benefit from the higher
margins associated with these value added products.
Chemical cluster delivers one third of group operating profit
Overall, our chemical cluster has had a very successful first quarter
contributing nearly one-third of group operating profit. Our Olefins and
Surfactants (O&S) business continues its outstanding performance by sustaining
a double-digit operating margin and increasing sales volumes. Overall the
chemical cluster has managed to increase the first quarter sales volumes by 2%
compared to the prior year quarterly average.
Construction of Tetramerisation plant
We are pleased to announce that our board has approved the construction of a
first-of-a-kind Tetramerisation plant. We are excited about commercialising
our proprietary technology to manufacture octene by tetramerising ethylene.
The planned capacity for this facility is 100 000 tons per annum and our plan
is to complete construction by 2014 financial year. Our Lake Charles complex
in Louisiana is an obvious choice for a site as ethylene feedstock will be
sourced from our existing ethane cracker. There are other excellent site
synergies such as high level engineering and process management skills. This
project will enable us to build on our position as a leading supplier of co-
monomers (1-octene and 1-hexene) and demonstrates Sasol`s culture of
technology innovation.
Ixia Empowerment transaction concluded
In October 2010, we announced the conclusion of the Ixia Coal transaction
which is in line with Sasol Mining`s empowerment strategy and its commitment
to comply with the objectives of the Mineral and Petroleum Resources
Development Act, and the Mining Charter. The transaction value is R1,8 billion
and is financed through equity and a combination of third party funding and
appropriate Sasol facilitation.
This agreement effectively results in WIPCoal Investments owning 10,2% of the
equity in Sasol Mining. We will recognise a loss on the disposal of the
business and a non cash IFRS-2 charge (facilitation cost) that will impact the
group attributable earnings per share by approximately R1 per share for the
current financial year due to the delay in the implementation of the
transaction. The transaction will, however, not affect headline earnings.
Future growth focused on GTL and natural gas
The group`s growth efforts have been refocused towards accelerating the GTL
value proposition. We do, however, continue to progress current advanced Coal-
to-Liquids (CTL) projects such as China CTL and India CTL.
The arbitrage between oil and gas prices remains compelling, driven largely by
changes in shale gas extraction technology. We believe there has been a
structural shift in the dynamics between gas and oil prices, with gas prices
likely to remain at depressed levels, thereby making GTL an even more
attractive value proposition.
In the context of these price dynamics, GTL has become more competitive
relative to Liquefied Natural Gas (LNG). Our efforts to increase natural gas
reserves through exploration and/or acquisition opportunities remain on track.
This will allow the group to accelerate its GTL value proposition. With Oryx
GTL currently being the only large-scale commercial GTL plant globally, Sasol
is well positioned to extend its competitive expertise and technology in
providing a viable alternative to monetising stranded gas.
We are nearing the completion of our feasibility study for a GTL facility in
Uzbekistan and are satisfied with the progress made thus far. As previously
communicated, the China CTL project is awaiting feedback from the National
Development and Reform Commission (NDRC) and the State Council of the Republic
of China, following which we will consider an investment decision.
The group`s balance sheet remains robust and we are in a good position to fund
our near-term projects and potential acquisitions.
Operational guidance on track for the full year
The group remains on track to deliver on its full-year expectation of
continued improved operational performance and cost containment within
inflationary levels. The strength of the rand remains a key risk to earnings
for the year given the sensitivity of our business to the rand/US dollar
exchange rate. Consideration will also be given to any adjustments arising
from our half-year closure process, as well as re-measurement effects
including the impact of the Ixia empowerment deal. An update on earnings
guidance will therefore be provided once we have a reasonable degree of
certainty on the interim results for financial year 2011.
Sasol`s interim results for the six months ended 31 December 2010 will be
released on Monday, 7 March 2011. The forecast financial information appearing
in this update has not been reviewed or reported on by Sasol`s external
auditors.
Annual General Meeting (AGM) feedback
Shareholders have, among other resolutions, approved the re-purchase of up to
a maximum of 10% of the company`s issued ordinary shares on the open market,
subject to board approval, and in accordance with the Companies Act and the
JSE Listings Requirements.
Shareholders have also approved the resolutions required to facilitate the
implementation of a trading mechanism involving the listing of the Sasol BEE
ordinary shares on the proposed BEE segment of the JSE.
In closing
We were pleased to have been ranked as the oil and gas global sector leader in
the internationally recognised Dow Jones Sustainability Index (DJSI) 2010,
based on an in-depth global analysis of corporate economic, environmental and
social performance. Sasol has also been ranked among the world`s top 100
companies for sustainability by the QCRD Global Sustainability (QCRD) Index`s
semi-annual report, issued on November 19, 2010. The award recognizes
exceptional delivery, in the fields of environmental, social and governance
issues, along with a strong financial performance.
We were also encouraged that Sasol`s 2009 annual report was ranked 14th among
the top 300 global annual reports out of the listed companies surveyed in the
2010 Annual Report of Annual Reports, published by Report Watch of e.com.
Best wishes for a safe and joyous festive season!
Best regards,
Christine Ramon
2 December 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 28 September 2010
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: 02/12/2010 08:00:13 Produced by the JSE SENS Department.
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