Energy and chemical conglomerate Sasol [JSE:SOL] announced on Monday that headline earnings increased 26.5% to R18.38bn in the six months to December 2013 compared to R14.5bn in the same period the previous year.
Headline earnings per share increased to R30.19 (2012: R24 per share) during the six months.
The interim dividend was increased to R8 per share compared to R5.70 in the previous year.
This indicates that the total dividend for the year is likely to be significantly higher than the R19 per share paid in the 2013 financial year.
Earnings were slightly better than original market expectations as analysts expected that a total shutdown of one of Sasol’s main plants would have impacted on earnings more than it really did.
Management said in the results announcement that Sasol Synfuels delivered better than expected production volumes for the period, namely 3.7m tons – unchanged from a year ago.
This was despite a total shutdown of part of the factory during September 2013.
CEO David Constable said this was the largest ever shutdown at Sasol Synfuels. It consisted of 155 822 activities undertaken with an additional 36 000 people on site.
Businesses in the EU have also performed better during the last six months after a few difficult years.
“We continued to optimise our production volumes and margins in the European businesses in light of the slower than expected recovery of the EU market,” said Constable.
Expectations
It seems that shareholders can expect good results in the second half year to June 2014.
Firstly, Sasol’s programme to reduce costs are achieving the expected results.
A year ago management announced its intentions to take a good look at the whole group and identified measures to reduce costs by more than R3bn a year.
“We are confident that we will exceed this savings target, of which 30% to 40% of the annual savings will be realised by the end of the 2015,” said Constable.
“The full benefit of our management interventions will be evident from the 2016 financial year.”
While management expects macro-economic conditions to remain volatile over the next year or so, it also expects a slight improved in natural gas prices and a slow recovery of chemical product prices.
Sasol’s biggest headache is the volatility in the exchange rate of the rand to the dollar. It remains one of the biggest external factors impacting its profitability.
The management said it will continue to focus on factors within its control, like volume growth, margin improvement and cost reduction.
Investigations
The management also updated shareholders on investigations by the Competition Commission into complaints against Sasol.
The commission is conducting investigations into several industries in which Sasol operates, including the piped gas, petroleum, fertilisers and polymer industries.
The mangement said Sasol continues to cooperate with the commission and further announcements will be made when necessary.
The management said it continues to evaluate and enhance Sasol’s compliance programmes and controls in general and, in particular, competition law compliance and controls.
International business
Sasol’s management said there was a strong operational performance from its global businesses.
The group said it had successfully commissioned a project in Lake Charles, Louisiana, which is using unique technology to convert ethylene into higher value chemical products used to strengthen plastic for consumer products such as food packaging.
It said the project “is currently in start-up and first product was successfully produced. We expect that the plant will be fully operational by the middle of the 2014 calendar year”.
* After chasing money on the JSE for 15 years, Adriaan Kruger is now living a relaxed lifestyle in Wilderness and lectures economics part-time at Nelson Mandela Metropolitan University.