Despite the sound financial year-end results, Sasol shares closed weaker on the JSE yesterday as the market signalled its displeasure as Sasol parked dividend payouts during the year ending December 2021 amid concerns over the global economic recovery and despite the group slashing its debt almost in half and returning to profit.
The significant increase in oil prices during the second half of the financial year and a strong recovery in liquid fuels demand in South Africa to mostly match pre-Covid levels were major tailwinds for the group.
The shares closed 5 percent lower at R206.64. However, Sasol yesterday promised to resume dividend payments once it met all its balance sheet targets.
Chief financial officer Paul Victor said the risk of a prolonged period of economic uncertainty still lurked.
“On this basis, although the board sees the restoration of dividends as a priority, the decision has been taken to continue with the suspension of dividends at this stage. This is a prudent step until the debt levels are further worked down,” Victor said.
Sasol cut its debt to R102 billion during the year ended June 2021 from R189.7bn a year earlier on solid financial results despite hurricanes in the US and the impact of the Covid-19 pandemic.
The group said capital and portfolio discipline coupled with delivering on the objectives of the $6bn (R88.2bn) response plan announced a year ago had been a boost.
Victor said judging by this year’s results, Sasol had delivered in spades.
“Our gearing has decreased from 117 percent in financial year 2020 to around 61 percent at June 30, and net debt to earnings before interest, taxation, depreciation and amortisation is now down to around 1.5 times. Absolute net debt is at $5.9bn dollars, and we achieved this without executing a rights issue,” Victor said.
In March last year Sasol announced an ambitious plan to reduce debt to acceptable levels and generate cash through asset sales in a bid to cushion the severe impact of the record low oil prices following the lockdowns to curb the spread of the Covid-19 pandemic. It also planned to issue up to $2bn rights in shares to tackle debt and, however, abandoned the rights issue after making significant progress in its asset disposal programme.
Sasol generated $3.8bn from the asset divestment programme, including its 50 percent in the Lake Charles Chemical Project and the sale of the 16 air separation units in Secunda with a lion’s share of the cash already banked.
Victor said as demand recovers for South African liquid fuels, sales volumes would likely increase to a range of 57 to 58 million barrels.
Sasol expects sales volumes at its chemicals America business to be in line with the prior year.